Accounting for Interest Rate Derivatives. Frank Wilary and Douglas Winn

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Accounting for Interest Rate Derivatives. Frank Wilary and Douglas Winn"

Transcription

1 Accounting for Interest Rate Derivatives FAS ASC 815 Presented by Frank Wilary and Douglas Winn May 1,

2 Describe hedge accounting and provide examples Address hedge effectiveness testingti Define hedge ineffectiveness testing vs. bookkeeping Provide alternative to hedge accounting We will briefly revisit certain items from our prior webinar on the rule itself 2

3 Derivatives must be accounted for and reported at fair value Three options to decrease resulting income statement volatility: 1. Fair Value Hedge Accounting 2. Fair Value Accounting 3. Cash Flow Hedge Accounting 3

4 1. Fair value hedge Two types of hedge accounting Change in fair value of the hedging instrument t runs through the income statement, along with the change in the fair value of the item being hedged used for existing financial assets and liabilities 2. Cash flow hedge Effective portion of the hedge is reported in Other Comprehensive Income, while the ineffective portion is reported in current earnings used for forecasted transactions or variable payments on existing financial assets and liabilities 4

5 Type of accounting depends on the item being hedged Credit Union enters into a Pay Fixed, Receive Floating Interest Rate Swap Fair Value Hedge Example: CU wants to hedge against the decrease in fair value of a fixed rate loan portfolio defines hedge as change in benchmark interest rate If benchmark interest t rate increases, fair value of the loans will decrease, and the fair value of the swap will increase. Change in each runs through the income statement Cash Flow Hedge Example: CU wants to hedge against increase in cost of its floating non-maturity deposits. Defines hedge as risk of an increase in the forecasted payments to its members. Effective portion will run through h OCI 5

6 Formal designation and documentation required at inception The CU s objective and strategy for the hedge must include: The hedging instrument the derivative (interest rate swap, interest rate floor, interest rate cap, etc.) The hedged item or transaction the asset or liability being hedged The nature of the risk being hedged interest rate risk The method that will be used to retrospectively and prospectively measure the hedge s effectiveness 6

7 The method that will be used to measure hedge ineffectiveness Benchmark interest rate being hedged Eligible benchmark rates are: Treasury rates Federal funds effective swap rate LIBOR In addition, for cash flow hedges the following information about forecasted transactions must be provided: Date on which transaction will occur Specific nature of asset or liability Quantity of the forecasted transaction 7

8 NCUA authorizes credit unions to use only the following derivatives: Interest Rate Swaps An agreement to exchange future payments of interest on a notional amount at specific times and for a specific time period Interest Rate Caps A contract, based on a reference interest rate, for payment to the purchaser when the reference interest rate rises above the level specified in the contract Interest Rate Floors A contract, based on a reference interest rate, for payment to the purchaser when the reference interest rate falls below the level l specified in the contract t 8

9 Note: Basis Swaps An agreement between two parties in which the parties make periodic payments to each other based on floating rate indices multiplied by a notional amount Treasury Note futures A U.S. Treasury note financial contract that obligates the buyer to take delivery of Treasury notes (or the seller to deliver Treasury notes) at a predetermined future date and price. Futures contracts are standardized to facilitate trading on an exchange Wilary Winn Risk Management believes all of the derivatives permitted by the NCUA meet the definition of a derivative under GAAP. 9

10 Notional Amount Limitit o Takes into account type of derivative, time to maturity and net worth Fair Value Loss Limit o Loss limit does not include hedge benefit measures the derivatives only o Limit is based on net aggregate loss of derivatives and net worth worth Entry Standard Limits Limits Total fair value Weighted average remaining maturity - notional

11 Cannot net offsetting transaction calculation is cumulative Step #1 Gross Adjust Factor Product National (Percent) Step #2 Adjusted Notional Step #3 WARM Options (Caps) Current notional 33 33% of current notional Time remaining to maturity Options (Floors) Current notional 33 33% of current notional Time remaining to maturity Swaps Current notional % of current notional Time remaining to maturity Futures Contract size % of contract size Underlying contract Sum = Total adjusted notional Sum = Overall WARM WARMN = Adjusted notional * (WARM/10) 11

12 To qualify for hedge accounting, the hedging g relationship (both at inception of the hedge and on an ongoing basis), shall be expected to be highly effective in achieving either of the following: Offsetting changes in fair value attributable to the hedged risk during the period that the hedge is designated - a fair value hedge Offsetting cash flows attributable to the hedged risk during the term of the hedge - a cash flow hedge 12

13 Hedge Effectiveness can be measured in two ways: 1. Dollar-offset approach Compares changes in fair value or cash flow of the hedged item and the derivative Can be applied period by period (cannot be less than 3 months) or cumulatively Most believe a dollar offset range of 80%-125% would be considered d highly effective 2. Statistical methodologies May permit a CU to continue to use hedge accounting for the current period even though the dollar-offset approach appears ineffective Complex to implement and requires multiple observation periods 13

14 Dollar-Offset Approach Example $50 MM pay fixed / receive floating 5-year interest rate swap Hedged item a group of fixed rate investments held AFS Market Rate Net Swap Change in Change in Change From Swap Fair Swap Investments Dollar Effective Month Inception Payment Value Fair Value Fair Value Offset % (y / n) Mo. 0 0b bps 0 Mo bps (68,950) (166,293) (166,293) 140, % yes Mo bps (71,327) (214,920) (48,627) 65, % no Mo bps (73,705) (371,804) (156,884) 150, % yes Mo bps (71,488) (181,349) 190,455 (140,757) 135.3% no Mo bps (62,835) 437, ,538 (625,865) 98.8% yes Total (348,305) 437,189 (410,361) 106.5% yes 14

15 Statistical Approaches Regression Analysis Minimum of 30 observations Must consider changes in the value of the derivative and the hedged item Time horizon must coincide or be less than the time horizon of the hedge relationship Must consider whether to regress value changes or value levels Must review distribution of error terms 15

16 Statistical Approaches Regression Analysis Continued R-squared result must exceed a pre-specified level (e.g. 0.80) Hedge relationship must correspond to beta (the slope of the regression line) Standard error must be used to calculate the reliability using the t statistic T-test must be passed at a 95% confidence level Must consider y-intercept Must compare results to dollar offset results 16

17 Statistical Approach Example R-squared Analysis Hedged item floating dividend rate on money market shares Mo LIBOR Line Fit Plot 1.40 Dividend Ra ate Div. Rate Predicted Div. Rate Mo LIBOR 17

18 Polling Question #1 If you have performed effectiveness testing in the past, what method did you use? Dollar offset Regression analysis Other statistical method Have not performed effectiveness testing 18

19 A credit union shall consider hedge effectiveness in two different ways: 1. Prospective Considerations 2. Retrospective Evaluations 19

20 Prospective Considerations Can be based on regression or other statistical analysis of past changes in fair values or cash flows as well as on other relevant information Shall consider all reasonably possible changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument t and the hedged d items for the period used to assess whether the requirement for expectation of highly effective offset is satisfied Not be limited only to the likely or expected changes in fair value (if a fair value hedge) or in fair value or cash flow (if a cash flow hedge) Generally involves a probability-weighted analysis consistent with FASB Concepts Statement No. 7 20

21 Retrospective Considerations An assessment of effectiveness shall be performed whenever financial statements or earnings are reported, and at least every three months Can be based on dollar offset or statistical approaches Dollar-offset measurement can be for period or cumulative Statistical methods must be similar period to period (e.g. same number of data points) 21

22 What if the hedge is not or no longer effective? The hedge accounting is discontinued prospectively, resulting in potential income statement volatility as the derivative is marked to market with no offset to the hedged item 22

23 Hedge ineffectiveness is measured by the Dollar-offset method Fair Value Hedge: Hedge ineffectiveness flows through the income statement based on any difference between the change in the value of the derivative and the change in value of the hedged item Cash Flow Hedge: Ineffectiveness must be separately measured and recorded on the income statement. If the fair value of the derivative changes by more than the present value of hedged cash flows, the difference is the ineffective amount. If the fair value of the hedged cash flows changes by more than the change in the fair value of the derivative then no ineffectiveness 23

24 Entities can assume no ineffectiveness in an interest rate swap in two instances: 1. A private company that enters into a pay fixed, receive floating interest rate swap (this exemption does not apply to financial institutions) 2. A swap can be examined to determine if it can be accounted for under the Short-Cut Method (this applies to all companies, including financial institutions) 24

25 To conclude no hedge ineffectiveness in a hedge with an interest rate swap, all of the following conditions must be met: Notional amount of swap matches principal amount of item being hedged Fair value of the swap is zero at inception Note: For the purposed of determining zero: can ignore bid/ask spread at inception, commissions, and other transaction costs 25

26 Formula for computing net settlements remains the same throughout the swap Fixed rate remains the same Variable rate index does not change Interest bearing asset or liability is not pre-payable Unless the prepayment is due to an embedded call (put) option and the swap has a mirror option call (put) option - options must mach exactly Because the NCUA does not allow a credit union to enter into a swap with this feature, we believe a swap involving loans that can be prepaid p will not qualify for the short-cut method Index on which the variable rate leg is based matches the benchmark interest rate designated as the interest rate being hedged 26

27 WW Risk Management does not recommend the short-cut method, because if you fail, you cannot reassess. We recommend that a credit union account for the swap using the long-haul method, recognizing that swaps that would qualify for the short-cut method will easily pass the effectiveness testing 27

28 As asset or liability is eligible for designation as a hedged item in a fair value hedge if all of the following criteria are met: The hedged item is specifically identified as either all or a specific portion of a recognized asset or liability or of an unrecognized firm commitment The hedged item presents an exposure to changes in fair value attributable to the hedged risk that could affect reported earnings 28

29 The hedged item is a single asset or liability (or a specific portion thereof) or is a portfolio of similar il assets or similar il liabilities (or a specific portion thereof) o If similar assets or similar liabilities are aggregated and hedged as a portfolio, the individual assets or liabilities shall share the risk exposure generally proportionate change in fair value o If the specific portion of an asset or liability then one or more selected contractual cash flows, including one or more individual interest payments during a selected portion of the term of a debt instrument (such as the portion of the asset or liability representing the present value of the interest payments in the first two years of a four-year debt instrument). o A put option or call option (including an interest rate cap or price cap or an interest rate floor or price floor) embedded in an existing asset or liability that is not an embedded derivative accounted for separately 29

30 If the hedged item is a financial asset or liability or a recognized loan servicing i right, the designated d risk being hedged d is any of the following: o The risk of changes in the overall fair value of the entire hedged item o The risk of changes in its fair value attributable t bl to changes in the designated benchmark interest rate (referred to as interest rate risk) o The risk of changes in its fair value attributable to both of the following (referred to as credit risk): Changes in the obligor s creditworthiness Changes in the spread over the benchmark interest rate with respect to the hedged item s credit sector at inception of the hedge 30

31 Change in fair value for each item in the portfolio must be within a fairly narrow range such as 9 to 11%. On the other hand, a range of 7 to 13% would not meet the similar portfolio requirement 31

32 In aggregating loans in a portfolio to be hedged, an entity may choose to consider some of the following characteristics, as appropriate: a. Loan type b. Loan size c. Nature and location of collateral d. Interest rate type (fixed or variable) e. Coupon interest rate (if fixed) f. Scheduled maturity g. Prepayment history of the loans (if seasoned) h. Expected prepayment performance in varying interest rate scenarios 32

33 Credit unions considering a fair value hedge should be aware of the following: Fair value hedge cannot be used to hedge interest rate risk on heldto-maturity securities If a fair value hedge is used to hedge interest rate risk on availablefor- sale securities then the change in the value of the hedged item runs through the income statement and not through OCI A partial-term hedge of a fixed rate financial instrument using a shorter-term, notionally matched swap will generally not "be effective" (e.g. hedging a 30-year loan with a 3-year swap) 33

34 Fair value hedge accounting is restrictive and complex, and a CU could elect to account for the financial instrument at fair value in order to avoid these complications and limitations. However, fair value election has several disadvantages: Hedge-accounting election can be terminated at any time, while the fair value election is irrevocable Nearly all of the change in value of an interest rate derivative over time will be due to changes in the market interest rates, while fair value of the loans will be affected by changes in interest t rate and credit conditions The CU will need to develop systems to estimate the fair value of loans over their entire lives 34

35 We recommend that if a credit union elects to account for loans at fair value, that it: Select high credit borrowers to minimize the change in value arising from deterioration of the borrower s credit or the widening out of credit spreads We note that t we have systems in place to estimate t the fair value of loans over their entire lives 35

36 Fixed Rate Mortgage Fair Value Example Fixed Rate Mortgage FICO Score Range LTV Range Avg FICO Avg LTV WAC CPR % CRR % CDR % Severity % Discount Rate Fair Value % 780+ under 50% % 4.2% 9.9% 9.9% 0.0% 0.0% 4.0% 100.3% % - 75% % 4.1% 9.4% 9.3% 0.0% 10.0% 4.2% 99.2% % - 100% % 4.7% 9.8% 9.8% 0.0% 15.0% 4.4% 100.6% % 4.3% 9.8% 9.7% 0.0% 5.2% 4.1% 100.0% under 50% % 4.0% 10.2% 9.8% 0.1% 0.0% 3.8% 100.4% % - 75% % 4.3% 9.8% 9.7% 0.1% 10.0% 4.2% 99.5% % - 100% % 47% 4.7% 96% 9.6% 95% 9.5% 01% 0.1% 15.0% 44% 4.4% 100.2% % 4.3% 9.9% 9.7% 0.1% 7.7% 4.1% 100.0% under 50% % 4.3% 8.6% 8.4% 0.2% 0.0% 4.1% 100.4% % - 75% % 4.6% 8.7% 8.4% 0.3% 10.0% 4.7% 98.4% % - 100% % 4.8% 6.3% 5.7% 0.6% 15.0% 5.8% 90.7% % 4.6% 8.0% 7.6% 0.3% 8.5% 4.9% 96.8% under 50% % 4.9% 8.3% 7.3% 1.0% 0.0% 4.4% 101.1% % - 75% % 4.9% 8.4% 7.3% 1.1% 10.0% 5.3% 95.4% % - 100% % 5.0% 7.5% 5.2% 2.3% 15.0% 7.4% 80.5% % 5.0% 8.1% 6.7% 1.4% 8.4% 5.6% 92.9% 36

37 An entity may designate a derivative instrument as hedging the exposure to variability in expected future cash flows that is attributable to a particular risk. That exposure may be associated with either of the following: Payments on an existing recognized asset or liability (such as all or certain future interest payments on variable-rate debt or variable rate liabilities share accounts) A forecasted transaction (such as a forecasted purchase or sale) 37

38 A forecasted transaction is eligible for designation as a hedged transaction in a cash flow hedge if all of the following criteria are met: A forecasted transaction ti is specifically identified d as either: a. A single transaction b. A group of individual transactions that share the same risk exposure for which they are designated as being hedged. A forecasted purchase and a forecasted sale shall not both be included in the same group of individual transactions that constitute the hedged transaction. 38

39 The occurrence of the forecasted transaction is probable. The forecasted transactions meets both of the following conditions: o It is a transaction with a party external to the reporting entity o It presents an exposure to variations in cash flows for the hedged d risk that could affect reported earnings The forecasted transaction is not the acquisition of an asset or incurrence of a liability that t will subsequently be re-measured with changes in fair value attributable to the hedged risk reported currently in earnings. If the forecasted transaction relates to a recognized asset or liability, the asset or liability is not re-measured with changes in fair value attributable to the hedged risk reported currently in earnings. 39

40 Polling Question #2 If you considering the use of derivatives, which types are you considering (select all that apply)? Swap Cap Floor Treasury futures Have not decided yet 40

41 If the hedged transaction is the variable cash inflow or outflow of an existing financial i asset or liability, the designated d risk being hedged d is any of the following: o The risk of overall changes in the hedged cash flows related to the asset or liability, such as those relating to all changes in the purchase price or sales price o The risk of changes in its cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) o The risk of changes in its cash flows attributable to all of the following (referred to as credit risk): i. Default ii. Changes in the obligor s creditworthiness iii. Changes in the spread over the benchmark interest rate with respect to the related financial asset s or liability s credit sector at inception of the hedge. 41

42 Fair Value Hedges Portfolio Method using an interest rate swap Purchase of an interest rate cap Cash Flow Hedges First Payments Method using an interest rate swap Method 1: Change in variable cash flows we will show example Method 2: Hypothetical derivative Method 3: Change in fair value Purchase of an interest rate cap 42

43 A pay fixed, receive floating interest rate swap is used to hedge against the change in the fair value of a portfolio of fixed rate single family mortgages Hedging item used - pay fixed, receive floating interest rate swap with a fair value of zero at inception Hedged item - portfolio of fixed rate single family mortgage loans Nature of the risk being hedged d - interest t rate risk defined d as the change in the fair value of the mortgage loan portfolio in relation to the change in benchmark interest rate (LIBOR) The portfolio of loans meets the similar il assets criteria i 43

44 A pay fixed, receive floating interest rate swap is used to hedge against the change in the fair value of a portfolio of fixed rate single family mortgages Stated maturity of swap is consistent with the stated maturities of the loans Swap amortizes on a schedule that equates to scheduled amortization of the loans 44

45 As part of its documented risk management strategy associated with this hedging relationship, on a quarterly basis, the credit union intends to do both of the following: Assess effectiveness of the existing hedging relationship for the past three- month period. Consider possible changes in value of the hedging derivative and the hedged item over the next three months in deciding whether it has an expectation that the hedging relationship will continue to be highly effective at achieving offsetting changes in fair value. Loans can prepay credit union considers prepayment risk of the portfolio in its prospective testing ti If loans prepay faster than expected resulting in an over-hedge credit union de-designates a portion of the swap for the next three month period 45

46 Portfolio Method Example $50 MM amortizing 15 year pay fixed / receive floating interest rate swap Hedged item a pool of 15-year fixed rate loans Market Amortizing Rate Change in Change in Hedge Change Net Swap Swap 15 Year Loan De-designation Notional From Swap Fair Fair Loan Pool Portfolio Dollar Effective Notional Month Amt Inception Payment Value Value Unpaid Bal. Value Offset % (y / n) Amount Mo. 0 50,000,000 0 bps 0 50,000,000 Mo. 1 49,796, bps (104,527) (251,261) (251,261) 49,571, , % yes Mo. 2 49,592,968 +5bps (97,316) 372, ,586 49,017,968 (508,479) 122.6% yes Mo. 3 49,388, bps (94,853) 639, ,718 48,632,600 (301,068) 88.6% yes 755,834 Total (296,696) 639,043 (552,447) 115.7% yes 755,834 46

47 An interest rate cap is purchased to hedge against the decline in the price of a $100 million 10-year treasury note, which the credit union is holding in its available-for- sale inventory. Hedging item used - in-the-money interest rate cap Hedged item - $100 million 10-year treasury note Nature of the risk being hedged d - interest t rate risk defined d as the change in the fair value of the note in relation to the change in benchmark interest rate - US treasury rate 47

48 Interest Rate Cap Example $100 MM semi-annual al 10-year with a cap strike price of 2.78% Semi-annual Cap Reset Intrinsic Time Total Payment Notional Strike Rate PV PV PV 1 100,000, ,000,000, ,152 1, ,000, ,076 41, ,000, , , ,000, , , ,000, , , ,000, , , , ,000, , , , ,000, , , , ,000, , , , ,000, , , , ,000, , , , ,000, , , , ,000, , , , ,000, , , , ,000, , , , ,000, , , , ,000, , , , ,000, , , ,764 Total 5,513,076 3,732,098 9,245,174 48

49 Interest Rate Cap Example $100 MM semi-annual al cap with a strike price of 2.78% Hedged item 10-year Treasury note PV Initial PV Updated Change in Change in PV Initial PV Updated Change in Intrinsic Intrinsic PV Intrinsic Treasury Dollar Time Time PV Time Value Value Value Security Value Offset % Effective? Value Value Value 5,513,076 6,566,932 1,053,856 (1,142,384) 92.25% yes 3,732,098 3,625,143 (106,955) Ineffective 49

50 A pay fixed, receive floating interest rate swap is used to hedge against the risk of increasing interest rates for a credit union's money market share accounts Hedging item used - pay fixed, receive floating interest rate swap with a fair value of zero at inception Hedged item - payments on the $50 million of the credit union's money market share accounts Nature of the risk being hedged - variability in cash flows on its quarterly interest payments on $50 million principal of money market share accounts 50

51 A pay fixed, receive floating interest rate swap is used to hedge against the risk of increasing interest rates for a credit union's money market share accounts Re-pricing beta is 0.50 compared with 60-day LIBOR and money market accounts have an estimated life of 3 years Credit union enters into a 3-year 60-day LIBOR swap with a notional amount of $25 million and quarterly settlements 51

52 Credit Union must perform effectiveness testing. To be effective, changes in money market rates must closely track changes in LIBOR. Effectiveness testing cannot be based on the changes in LIBOR only must consider actual payments made because the dividend rate is not the risk free rate Ineffectiveness can be measured in one of three ways: Change in variable cash flows method we will show an example Hypothetical derivative method Change in fair value method 52

53 Hedge ineffectiveness is based on a comparison of: Variable leg of the interest rate swap Hedged variable-rate cash flows on the money market account Based on the premise that only the floating-rate component of the interest rate swap provides the cash flow hedge The interest rate swap is recorded at fair value on the balance sheet. The calculation of ineffectiveness involves a comparison of the following amounts: a. The present value of the cumulative change in the expected future cash flows on the variable leg of the interest rate swap b. The present value of the cumulative change in the expected future interest cash flows on the variable-rate asset or liability 53

54 If the variability of the hedged cash flows of the variable-rate asset or liability is based solely l on changes in a variable-rate index, the present value of the cumulative changes in expected future cash flows shall be calculated using the discount rates applicable to determining the fair value of the interest rate swap Hedge ineffectiveness results when the present value of the cumulative cash flows on the swap exceed the present value of the cumulative cash flows of the designated money market accounts. Conversely, there is no ineffectiveness if the PV of the designated money market payments exceed the PV of the swap (FAS ASC (b) 54

55 Change in Variable Cash Flow Method Example $25 MM 3-year pay fixed / receive floating interest rate swap Hedged item variability in cash flows on its quarterly interest payments on $50 million principal of money market share accounts At Inception Testing After Initial Quarter Expected Present Expected Present Present Present Ineffective Swap Variable Value of Share Value of Value of Value of Portion of Payment Receipts Variable Leg Payments Share Pmts Variable Leg Share Pmts the Hedge Year 1, Quarter 1 12,094 12,088 12,094 12,088 Year 1, Quarter 2 14,328 14,312 14,328 14,312 23,680 22,552 Year 1, Quarter 3 15,396 15,371 15,396 15,371 24,723 23,546 Year 1, Quarter 4 19,259 19,212 19,259 19,212 28,546 27,187 Year 2, Quarter 1 25,647 25,558 25,647 25,558 34,865 33,205 Year 2, Quarter 2 38,106 37,916 38,106 37,916 47,179 44,932 Year 2, Quarter 3 52,796 52,422 52,796 52,422 61,622 58,688 Year 2, Quarter 4 69,886 69,198 69,886 69,198 78,314 74,584 Year 3, Quarter 1 89,047 87,857 89,047 87,857 96,864 92,251 Year 3, Quarter 2 106, , , , , ,823 Year 3, Quarter 3 123, , , , , ,518 Year 3, Quarter 4 140, , , , , , , , , , , ,124 37,306 55

56 Credit union purchases an interest rate cap to hedge against the risk of adverse extreme marketplace interest rate changes on the credit union's floating rate Federal Home Loan Bank advances. Hedging item used out-of-the-money interest rate cap Hedged d item adverse extreme market place interest t rate changes related to its variable rate payments on the credit union's $50 million Federal Home Loan Bank advances Nature of the risk being hedged d -variability in cash flows on the quarterly interest payments on its $50 million Federal Home Loan Bank advances 56

57 Interest Rate Cap Example $50 MM 3-year quarterly with an out of the money strike price of 3.00% Hedged item 3-month LIBOR interest rate changes above 3.00% Quarterly Cap Reset Intrinsic Time Total Pe riod Notional Strike Rate PV PV PV 1 50,000, ,000, ,000, ,000, ,000, ,000, ,000, ,216 4, ,000, ,257 13, ,000, ,363 12, ,000, ,970 23, ,000, ,364 40, ,000, ,180 58,180 Total 0 153, ,305 57

58 Interest Rate Cap Example $50 MM 3-year quarterly with an out of the money strike price of 3.00% Hedged item 3-month LIBOR interest rate changes above 3.00% Perfectly matched resets, indices and terms fair value includes time & intrinsic value Fair Value Change in Fair Value Period , , ,600 (134,821) - 378, , , ,075 (1,246) (1,414) (6,525) 2 15, , ,551 (1,246) (1,414) (6,525) 3 15, , ,403 (330) 825 (10,148) 148) 4 18, , ,459 3,051 5,791 (6,944) 5 24, , ,234 5,995 10,270 (5,225) 6 19, , ,803 (5,465) (15,630) (43,431) 7 16, , ,047 (2,994) (14,135) (46,756) 8 16, , , (11,863) (50,339) 9 20, , ,916 3,437 (11,579) (55,792) 10 9,207 68, ,038 (11,184) (45,764) (103,878) 11 1,926 27,964 96,224 (7,281) (40,429) (99,814) ,953 (1,926) (27,964) (62,271) (153,305) (153,305) (119,352) 58

59 Call Report References Other Assets,32 d Non-Trading Derivatives Assets, net Liabilities, 7 Non-Trading Derivative Liabilities, net Schedule D: Pages Risk Based Capital AOCI not included in capital so no regulatory benefit for cash flow hedge 59

60 Identify the optimal derivative(s) to be used given your credit union's ALM profile Work with you to amend your ALM policies to allow for the use of derivatives Work with you to draft derivatives policies and procedures that ensure you have the proper internal controls in place and that you meet all of the NCUA requirements regarding the use of derivatives We can provide estimates of ongoing fair value for loans, investments, and liabilities which you have elected to account for at fair value. We can also help you with the initial selection of the items 60

61 For those electing hedge accounting we can: Develop the appropriate interest rate hedge and hedging item(s) to be used given your credit union's ALM profile Work with you to identify the item(s) to be hedged and the nature of the risk being hedged Ensure you are able to achieve hedge accounting - including prospective p and retrospective effectiveness testing on a dollar offset or statistical basis Provide you with the journal entries needed to report hedging activities 61

62 Services and Contact Information Asset Liability Management, Derivatives and Private Label MBS/CMOs: Frank Wilary Mergers and Acquisitions, Fair Value Footnotes, ASC , and TDRs: Brenda Lidke Mortgage Servicing Rights and Mortgage Banking Derivatives: Eric Nokken 62

63 Wilary Winn Risk Management LLC First National Bank Building 332 Minnesota Street, Suite W1750 Saint Paul, MN

Accounting for Interest Rate Derivatives

Accounting for Interest Rate Derivatives The accounting rules governing derivatives are covered in FASB Accounting Standards Codification ( FASB ASC ) Topic 815 Derivatives and Hedging. Derivatives must be measured and reported at fair value.

More information

Best Practices in Asset Liability Management

Best Practices in Asset Liability Management Best Practices in Asset Liability Management Frank Wilary Principal Wilary Winn LLC September 22, 2014 1 Topics Covered Best practices related to ALM modeling Best practices related to managing the ALM

More information

Should My Credit Union Use Derivatives to Manage Interest Rate Risk?

Should My Credit Union Use Derivatives to Manage Interest Rate Risk? Should My Credit Union Use Derivatives to Manage Interest Rate Risk? On January 23, 2014, the NCUA Board adopted a final rule that allows federal credit unions to mitigate interest rate risk with permissible

More information

Hedging Interest-Rate Risk: A Primer in Instruments. & Accounting. September 29, 2015. Presented by: Ruth Hardie

Hedging Interest-Rate Risk: A Primer in Instruments. & Accounting. September 29, 2015. Presented by: Ruth Hardie Hedging Interest-Rate Risk: A Primer in Instruments September 29, 2015 & Accounting Presented by: Ruth Hardie Hedge Trackers, LLC Integrated Derivative Management Interest Rate, Foreign Currency and Commodities

More information

Derivatives, Measurement and Hedge Accounting

Derivatives, Measurement and Hedge Accounting Derivatives, Measurement and Hedge Accounting IAS 39 11 June 2008 Contents Derivatives and embedded derivatives Definition Sample of products Accounting treatment Measurement Active market VS Inactive

More information

Statement of Statutory Accounting Principles No. 86

Statement of Statutory Accounting Principles No. 86 Statement of Statutory Accounting Principles No. 86 Accounting for Derivative Instruments and Hedging, Income Generation, and Replication (Synthetic Asset) Transactions STATUS Type of Issue: Common Area

More information

Simplified hedge accounting approach

Simplified hedge accounting approach No. 2014-06 April 3, 2014 What s inside: Overview... 1 Background... 1 Key provisions... 2 Applicability of simplified hedge accounting approach... 2 Recognition... 3 Hedge documentation requirements...

More information

FAS 133 Reporting and Foreign Currency Transactions

FAS 133 Reporting and Foreign Currency Transactions FAS 133 Reporting and Foreign Currency Transactions Participating Forwards An opinion on the Appropriate Accounting & Authority with Relevant Accounting Citations RISK LIMITED CORPORATION 2007 Risk Limited

More information

Interaction of FAS 157 with FAS 133:

Interaction of FAS 157 with FAS 133: Interaction of FAS 157 with FAS 133: The Second Wave By: Peter Seward, Vice President, Product Strategy, Reval June 2, 2009 CONTENT Executive Summary Introduction FAS 157 Fair Valuations Impact on FAS

More information

Alternative Energy Derivative and Hedge Accounting

Alternative Energy Derivative and Hedge Accounting Alternative Energy Derivative and Hedge Accounting Clint Carlin ccarlin@deloitte.com Jason Weaver jaweaver@deloitte.com Deloitte & Touche LLP Agenda Derivative Accounting and NPNS Jason Weaver Benefits

More information

Mortgage Servicing Rights

Mortgage Servicing Rights ACCOUNTING FOR MORTGAGE BANKING ACTIVITIES Mortgage Servicing Rights Mortgage banking involves relatively sophisticated financial activities including the creation of derivatives, hedging, and the intricacies

More information

Derivatives and Hedging (Topic 815)

Derivatives and Hedging (Topic 815) No. 2014-03 January 2014 Derivatives and Hedging (Topic 815) Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps Simplified Hedge Accounting Approach a consensus of the Private Company

More information

1Q 2014 Stockholder Supplement. May 7, 2014

1Q 2014 Stockholder Supplement. May 7, 2014 1Q 2014 Stockholder Supplement May 7, 2014 Safe Harbor Notice This presentation, other written or oral communications and our public documents to which we refer contain or incorporate by reference certain

More information

Statement of Financial Accounting Standards No. 133

Statement of Financial Accounting Standards No. 133 Statement of Financial Accounting Standards No. 133 FAS133 Status Page FAS133 Summary Accounting for Derivative Instruments and Hedging Activities June 1998 Financial Accounting Standards Board of the

More information

Accounting and Regulatory Guidance for the Federal Home Loan Banks MPF Program

Accounting and Regulatory Guidance for the Federal Home Loan Banks MPF Program Federal Home Loan Bank of Des Moines Charting Your Course Member Conference Mortgage Partnership Finance Program MPF Accounting and Regulatory Guidance Mortgage Partnership Finance, MPF and MPF Xtra are

More information

Foreign Currency Forward Contracts and Cash Flow Hedging. Navigating Accounting and Disclosure Requirements. & A accounting

Foreign Currency Forward Contracts and Cash Flow Hedging. Navigating Accounting and Disclosure Requirements. & A accounting A & A accounting C C O U N T I N G U D I T I N G Foreign Currency Forward Contracts and Cash Flow Hedging Navigating Accounting and Disclosure Requirements By Josef Rashty and John O'Shaughnessy C ompanies

More information

Note 8: Derivative Instruments

Note 8: Derivative Instruments Note 8: Derivative Instruments Derivative instruments are financial contracts that derive their value from underlying changes in interest rates, foreign exchange rates or other financial or commodity prices

More information

Hedge Accounting for Effective Risk Management

Hedge Accounting for Effective Risk Management Hedge Accounting for Effective Risk Management Tracey Ferguson Knight Director, Solution Consulting May 29, 2014 Agenda o Introduction to Hedge Accounting o Benefits of Hedge Accounting o Framework for

More information

Accounting for hedging activities

Accounting for hedging activities No. 2014-03 January 30, 2014 What s inside: Overview... 1 Background... 1 Key provisions... 3 Qualifying for hedge accounting... 3 Eligible hedged items... 9 Hedging instruments... 17 Presentation... 21

More information

FAS ASC 310-30 Accounting for Purchased Loans with Deteriorated Credit Quality

FAS ASC 310-30 Accounting for Purchased Loans with Deteriorated Credit Quality 55 East Fifth Street, Suite 1020 Alliance Bank Center Saint Paul, MN 55101 651.224.1200 www.wilwinn.com Version Two - Updated and Revised May 2013 FAS ASC 310-30 Accounting for Purchased Loans with Deteriorated

More information

Part A1 - Accounting for Derivative Instruments and Hedging Activities

Part A1 - Accounting for Derivative Instruments and Hedging Activities The Supervisor of Banks: Reporting Provisions to the Public [2](10/02) Page 661-22 Part A1 - Accounting for Derivative Instruments and Hedging Activities Introduction (10/02) a. This Provision addresses

More information

Financial Instruments Hedges. Section 3865. Financial Instruments (slide 1)

Financial Instruments Hedges. Section 3865. Financial Instruments (slide 1) Financial Instruments Hedges Section 3865 Financial Instruments (slide 1) This presentation provides an overview of Section 3865, Hedges, published by the Accounting Standards Board on January 27, 2005.

More information

IFRS 9 CHAPTER 6 HEDGE ACCOUNTING

IFRS 9 CHAPTER 6 HEDGE ACCOUNTING IFRS 9 CHAPTER 6 HEDGE ACCOUNTING Implementation Guidance 1 IFRS Foundation DRAFT IMPLEMENTATION GUIDANCE GUIDANCE ON IMPLEMENTING IFRS 9 FINANCIAL INSTRUMENTS Illustrative examples Questions and answers

More information

different periods sometimes referred to as an accounting mismatch

different periods sometimes referred to as an accounting mismatch Matching the change in FV of the hedging instrument and the hedged item in profit or loss for the same period Hedge accounting is only an issue when normal accounting would put the two fair value changes

More information

SSI 1 - INTRODUCTION TO CREDIT UNION FINANCIAL MANAGEMENT

SSI 1 - INTRODUCTION TO CREDIT UNION FINANCIAL MANAGEMENT Sponsored by Catalyst Corporate FCU 1 Sponsored by Catalyst Corporate FCU SSI 1 - INTRODUCTION TO CREDIT UNION FINANCIAL MANAGEMENT Reviews the basic financial components and variables that impact credit

More information

Using interest rate swaps to increase commercial loans and fee Income By Chad McKeithen

Using interest rate swaps to increase commercial loans and fee Income By Chad McKeithen Using interest rate swaps to increase commercial loans and fee Income By Chad McKeithen Changing landscape There is a growing dilemma between banks nationwide. Some banks are increasing their commercial

More information

NEED TO KNOW. Hedge Accounting (IFRS 9 Financial Instruments)

NEED TO KNOW. Hedge Accounting (IFRS 9 Financial Instruments) NEED TO KNOW Hedge Accounting (IFRS 9 Financial Instruments) 2 HEDGE ACCOUNTING (IFRS 9 FINANCIAL INSTRUMENTS) TABLE OF CONTENTS Table of contents 2 1. Introduction 4 2. Existing guidance and the rationale

More information

Note 10: Derivative Instruments

Note 10: Derivative Instruments Note 10: Derivative Instruments Derivative instruments are financial contracts that derive their value from underlying changes in interest rates, foreign exchange rates or other financial or commodity

More information

IFRS 9 Hedging in Practice Frequently asked questions

IFRS 9 Hedging in Practice Frequently asked questions www.pwc.co.uk IFRS 9 Hedging in Practice Frequently asked questions Corporate Treasury s March 2015 2 IFRS 9 Hedging in Practice Frequently asked questions PwC Preface Many companies are now considering

More information

LOCKING IN TREASURY RATES WITH TREASURY LOCKS

LOCKING IN TREASURY RATES WITH TREASURY LOCKS LOCKING IN TREASURY RATES WITH TREASURY LOCKS Interest-rate sensitive financial decisions often involve a waiting period before they can be implemen-ted. This delay exposes institutions to the risk that

More information

Credit Union Merger Accounting Guidance

Credit Union Merger Accounting Guidance 55 East Fifth Street, Suite 1020 Alliance Bank Center Saint Paul, MN 55101 651.224.1200 www.wilwinn.com Released March 2013 - Version 2 Credit Union Merger Accounting Guidance Following are some of the

More information

ISDA. September 21, 2007

ISDA. September 21, 2007 ISDA International Swaps and Derivatives Association, Inc. 360 Madison Avenue, 16th Floor New York, NY 10017 United States of America Telephone: 1 (212) 901-6000 Facsimile: 1 (212) 901-6001 email: isda@isda.org

More information

Agenda ref. Paper topic. 2. We. (a) (b) 4. The. 5. The. risk. 3. This paper: in public and. Page 1 of 12

Agenda ref. Paper topic. 2. We. (a) (b) 4. The. 5. The. risk. 3. This paper: in public and. Page 1 of 12 Agenda ref 1 STAFF PAPER Capital Markets Advisory Committee Meeting 12 October 2011 Paper topic Risk-free rate of return This paper has been prepared by the staff of the IFRS Foundationn for discussion

More information

DERIVATIVE ADDITIONAL INFORMATION

DERIVATIVE ADDITIONAL INFORMATION DERIVATIVE ADDITIONAL INFORMATION I. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES A. Definitions and Concepts 1. Derivative Instrument A "derivative instrument" is a financial instrument that "derives"

More information

ASSET LIABILITY MANAGEMENT Significance and Basic Methods. Dr Philip Symes. Philip Symes, 2006

ASSET LIABILITY MANAGEMENT Significance and Basic Methods. Dr Philip Symes. Philip Symes, 2006 1 ASSET LIABILITY MANAGEMENT Significance and Basic Methods Dr Philip Symes Introduction 2 Asset liability management (ALM) is the management of financial assets by a company to make returns. ALM is necessary

More information

Practical guide to IFRS

Practical guide to IFRS pwc.com/ifrs Practical guide to IFRS IASB completes first phase of IFRS 9 accounting for financial instruments At a glance The IASB completed part of the first phase of this project on financial assets

More information

Accounting for Derivatives

Accounting for Derivatives Accounting for Derivatives 1 Accounting for Derivatives Copyright 2014 by DELTACPE LLC All rights reserved. No part of this course may be reproduced in any form or by any means, without permission in writing

More information

Financial Instruments and Related Risk Management

Financial Instruments and Related Risk Management Note 24 Share-Based Compensation continued Other Plans The company offers a deferred share unit plan to non-employee directors, which allows each to choose to receive, in the form of deferred share units

More information

GASB 53, Accounting and Financial Reporting for Derivative Instruments. Xihao Hu AERS Partner Deloitte & Touche, LLP May 3, 2010

GASB 53, Accounting and Financial Reporting for Derivative Instruments. Xihao Hu AERS Partner Deloitte & Touche, LLP May 3, 2010 GASB 53, Accounting and Financial Reporting for Derivative Instruments Xihao Hu AERS Partner Deloitte & Touche, LLP May 3, 2010 This presentation contains general information only and Deloitte is not,

More information

Introduction to swaps

Introduction to swaps Introduction to swaps Steven C. Mann M.J. Neeley School of Business Texas Christian University incorporating ideas from Teaching interest rate and currency swaps" by Keith C. Brown (Texas-Austin) and Donald

More information

IFRS Practice Issues for Banks: Loan acquisition accounting

IFRS Practice Issues for Banks: Loan acquisition accounting IFRS Practice Issues for Banks: Loan acquisition accounting August 2011 kpmg.com/ifrs Contents 1. Addressing complexity in loan acquisitions 1 2. When should the acquisition of a loan be recognised in

More information

First Financial Bancorp

First Financial Bancorp First Financial Bancorp Accounting and Financial Reporting Matters Related to Acquired Loans February 4, 2011 Another step on the path to success 1 Forward-Looking Statement Disclosure Certain statements

More information

Guidance on Implementing Financial Instruments: Recognition and Measurement

Guidance on Implementing Financial Instruments: Recognition and Measurement STATUTORY BOARD SB-FRS 39 FINANCIAL REPORTING STANDARD Guidance on Implementing Financial Instruments: Recognition and Measurement CONTENTS SECTION A SCOPE A.1 Practice of settling net: forward contract

More information

CONNEXUS ENERGY. Financial statements as of and for the Years Ended December 31, 2010 and 2009, and Independent Auditors Report.

CONNEXUS ENERGY. Financial statements as of and for the Years Ended December 31, 2010 and 2009, and Independent Auditors Report. CONNEXUS ENERGY Financial statements as of and for the Years Ended December 31, 2010 and 2009, and Independent Auditors Report. INDEPENDENT AUDITORS REPORT To the Board of Directors of Connexus Energy

More information

IFRS 9 Classification and measurement

IFRS 9 Classification and measurement No. US2014-05 August 13, 2014 What s inside: Background... 1 Overview of the model... 2 The model in detail... 4 Transition... 17 Implementation challenges... 19 IFRS 9 Classification and measurement At

More information

Accounting For Credit Union Mergers

Accounting For Credit Union Mergers 55 East Fifth Street, Suite 1020 Alliance Bank Center Saint Paul, MN 55101 651.224.1200 www.wilwinn.com Released March 2013 - Version 2 Accounting For Credit Union Mergers Credit unions historically accounted

More information

International Financial Reporting Standard 7. Financial Instruments: Disclosures

International Financial Reporting Standard 7. Financial Instruments: Disclosures International Financial Reporting Standard 7 Financial Instruments: Disclosures INTERNATIONAL FINANCIAL REPORTING STANDARD AUGUST 2005 International Financial Reporting Standard 7 Financial Instruments:

More information

International Swaps and Derivatives Association, Inc. Disclosure Annex for Interest Rate Transactions

International Swaps and Derivatives Association, Inc. Disclosure Annex for Interest Rate Transactions International Swaps and Derivatives Association, Inc. Disclosure Annex for Interest Rate Transactions This Annex supplements and should be read in conjunction with the General Disclosure Statement. NOTHING

More information

DERIVATIVES IMPLEMENTATION GROUP

DERIVATIVES IMPLEMENTATION GROUP DERIVATIVES IMPLEMENTATION GROUP The Derivatives Implementation Group is a task force that was created to assist the FASB in answering questions that companies will face when they begin implementing Statement

More information

January 1, Year 1 Equipment... 100,000 Note Payable... 100,000

January 1, Year 1 Equipment... 100,000 Note Payable... 100,000 Illustrations of Accounting for Derivatives Extension of Chapter 11 Web This reading illustrates the accounting for the interest rate swaps in Examples 13 and 14 in Chapter 11. Web problem DERIVATIVE 1

More information

Interim Consolidated Financial Statements (Unaudited)

Interim Consolidated Financial Statements (Unaudited) Terasen Gas Inc. A subsidiary of Fortis Inc. Interim Consolidated Financial Statements (Unaudited) For the three and six months ended June 30, 2008 FOR MORE INFORMATION ABOUT TERASEN GAS VISIT OUR WEBSITE

More information

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10 - Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10 - Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10 - Q QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31,

More information

Accounting and Regulatory Guidance for the Federal Home Loan Banks MPF. Mortgage Partnership Finance Program

Accounting and Regulatory Guidance for the Federal Home Loan Banks MPF. Mortgage Partnership Finance Program Mortgage Partnership Finance Program Accounting and Regulatory Guidance for FFIEC Reporting Institutions December 4, 2008 Mortgage Partnership Finance, and MPF are registered trademarks of the Federal

More information

Assurance and accounting A Guide to Financial Instruments for Private

Assurance and accounting A Guide to Financial Instruments for Private june 2011 www.bdo.ca Assurance and accounting A Guide to Financial Instruments for Private Enterprises and Private Sector t-for-profit Organizations For many entities adopting the Accounting Standards

More information

Notes to Consolidated Financial Statements Note 1: Basis of Presentation

Notes to Consolidated Financial Statements Note 1: Basis of Presentation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS to Consolidated Financial Statements Note 1: Basis of Presentation Bank of Montreal ( the bank ) is a public company incorporated in Canada having its registered

More information

STATE STREET INSTITUTIONAL INVESTMENT TRUST. Supplement Dated January 30, 2014. Prospectus Dated April 30, 2013

STATE STREET INSTITUTIONAL INVESTMENT TRUST. Supplement Dated January 30, 2014. Prospectus Dated April 30, 2013 STATE STREET INSTITUTIONAL INVESTMENT TRUST Supplement Dated January 30, 2014 Prospectus Dated April 30, 2013 State Street Institutional U.S. Government Money Market Fund State Street Institutional Treasury

More information

www.pwc.co.uk Practical guide General hedge accounting December 2013

www.pwc.co.uk Practical guide General hedge accounting December 2013 www.pwc.co.uk Practical guide General hedge accounting December 2013 Contents 1. Introduction 1 1.1. Overview of IFRS 9 1 1.2. General hedge accounting 1 2. Hedge accounting 3 2.1. What is hedge accounting?

More information

National Professional Services Group. Consideration of Credit Risk in Fair Value Measurements an addendum to PwC's Guide to Fair Value Measurements

National Professional Services Group. Consideration of Credit Risk in Fair Value Measurements an addendum to PwC's Guide to Fair Value Measurements National Professional Services Group Consideration of Credit Risk in Fair Value Measurements an addendum to PwC's Guide to Fair Value Measurements 2008 This publication has been prepared for general information

More information

Implications for derivatives and hedge accounting under the Dodd-Frank Act

Implications for derivatives and hedge accounting under the Dodd-Frank Act Implications for derivatives and hedge accounting under the Dodd-Frank Act In July 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act 1 (the Act ) to increase government

More information

Using Hedge Accounting to Better Reflect Risk Mitigation Strategies. Jeff Craft Jason Weaver Deloitte & Touche LLP

Using Hedge Accounting to Better Reflect Risk Mitigation Strategies. Jeff Craft Jason Weaver Deloitte & Touche LLP Using Hedge Accounting to Better Reflect Risk Mitigation Strategies Jeff Craft Jason Weaver Deloitte & Touche LLP Agenda Benefits / Requirements / Challenges of Hedge Accounting Risk Management / What

More information

Eurodollar Futures, and Forwards

Eurodollar Futures, and Forwards 5 Eurodollar Futures, and Forwards In this chapter we will learn about Eurodollar Deposits Eurodollar Futures Contracts, Hedging strategies using ED Futures, Forward Rate Agreements, Pricing FRAs. Hedging

More information

OREGON ACCOUNTING MANUAL

OREGON ACCOUNTING MANUAL Statewide Policy OREGON ACCOUNTING MANUAL Subject: Accounting and Financial Reporting Number: 15.20.00 Division: Chief Financial Office Effective date: July 16, 2015 Chapter: Accounting and Financial Reporting

More information

Federal Home Loan Bank of San Francisco Announces Second Quarter Operating Results

Federal Home Loan Bank of San Francisco Announces Second Quarter Operating Results News Release Federal Home Loan Bank of San Francisco Announces Second Quarter Operating Results San Francisco, The Federal Home Loan Bank of San Francisco today announced that its net income for the second

More information

Financial-Institutions Management. Solutions 4. 8. The following are the foreign currency positions of an FI, expressed in the foreign currency.

Financial-Institutions Management. Solutions 4. 8. The following are the foreign currency positions of an FI, expressed in the foreign currency. Solutions 4 Chapter 14: oreign Exchange Risk 8. The following are the foreign currency positions of an I, expressed in the foreign currency. Currency Assets Liabilities X Bought X Sold Swiss franc (S)

More information

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10 - Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10 - Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10 - Q QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30,

More information

A Guide to Investing in Floating-rate Securities

A Guide to Investing in Floating-rate Securities A Guide to Investing in Floating-rate Securities What to know before you buy Are floating rate bonds suitable for you? The features, risks and characteristics of floating rate bonds are different from

More information

Fair Value Macro Hedging

Fair Value Macro Hedging Fair Value Macro Hedging Implementing a Highly Efficient Hedge Accounting Methodology for Fixed Rate Loan Portfolios By: Gerry Daly, Senior Solutions Consultant, Reval May 30, 2011 CONTENT Executive Summary

More information

BUS-495 Fall 2011 Final Exam: December 14 Answer Key

BUS-495 Fall 2011 Final Exam: December 14 Answer Key Name: Score: BUS-495 Fall 011 Final Exam: December 14 Answer Key 1. (6 points; 1 point each) If you are neutral on a particular stock for the short term and looking to generate some income using options,

More information

Chapter 5 Financial Forwards and Futures

Chapter 5 Financial Forwards and Futures Chapter 5 Financial Forwards and Futures Question 5.1. Four different ways to sell a share of stock that has a price S(0) at time 0. Question 5.2. Description Get Paid at Lose Ownership of Receive Payment

More information

ANALYSIS OF FIXED INCOME SECURITIES

ANALYSIS OF FIXED INCOME SECURITIES ANALYSIS OF FIXED INCOME SECURITIES Valuation of Fixed Income Securities Page 1 VALUATION Valuation is the process of determining the fair value of a financial asset. The fair value of an asset is its

More information

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments Part 5c: IFRS 9 Financial Instruments Designated to replace IAS 32 and IAS 39 Response to the financial crisis: Beginning of crisis in August 2008, decrease of market values of securitized financial instruments

More information

Managing the Investment Portfolio

Managing the Investment Portfolio Managing the Investment Portfolio GSBC Executive Development Institute April 26, 2015 Portfolio Purpose & Objectives Tale of Two Balance Sheets o Components of Core Balance Sheet Originated loans Retail

More information

CONTACTS: PRESS RELATIONS BETSY CASTENIR (212) 339-3424 INVESTOR RELATIONS ROBERT TUCKER (212) 339-0861 FSA HOLDINGS FIRST QUARTER 2004 RESULTS

CONTACTS: PRESS RELATIONS BETSY CASTENIR (212) 339-3424 INVESTOR RELATIONS ROBERT TUCKER (212) 339-0861 FSA HOLDINGS FIRST QUARTER 2004 RESULTS FOR IMMEDIATE RELEASE CONTACTS: PRESS RELATIONS BETSY CASTENIR (212) 339-3424 INVESTOR RELATIONS ROBERT TUCKER (212) 339-0861 FSA HOLDINGS FIRST QUARTER 2004 RESULTS NET INCOME $84 Million in Q1 04 (+28%

More information

UNITED COMMUNITY BANKS, INC. (Exact name of registrant as specified in its charter)

UNITED COMMUNITY BANKS, INC. (Exact name of registrant as specified in its charter) [X] UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended

More information

IAS 39 Achieving hedge accounting in practice

IAS 39 Achieving hedge accounting in practice International Financial Reporting Standards IAS 39 Achieving hedge accounting in practice December 2005 www.pwc.com/ifrs PricewaterhouseCoopers (www.pwc.com) is the world s largest professional services

More information

INTEREST RATE SWAPS September 1999

INTEREST RATE SWAPS September 1999 INTEREST RATE SWAPS September 1999 INTEREST RATE SWAPS Definition: Transfer of interest rate streams without transferring underlying debt. 2 FIXED FOR FLOATING SWAP Some Definitions Notational Principal:

More information

New on the Horizon: Hedge accounting

New on the Horizon: Hedge accounting IFRS New on the Horizon: Hedge accounting January 2011 kpmg.com/ifrs Contents 1. Highlights 2 2. Introduction and background 4 2.1 Overview of the IAS 39-replacement project 4 3. Overview 5 4. Objective

More information

NEW YORK LONDON SINGAPORE TOKYO

NEW YORK LONDON SINGAPORE TOKYO ISDA International Swaps and Derivatives Association, Inc. One New Change London, EC4M 9QQ Telephone: 44 (20) 7330 3550 Facsimile: 44 (20) 7330 3555 email: isda@isda-eur.org website: www.isda.org Sir David

More information

3. Market risks and derivatives. Foreign currency risk management

3. Market risks and derivatives. Foreign currency risk management 3. Market risks and derivatives The Company is exposed to a variety of financial risks: market risks (including foreign currency exchange risk and interest rate risk), credit risk, liquidity and capital

More information

INSURANCE. Moving towards global insurance accounting

INSURANCE. Moving towards global insurance accounting IFRS NEWSLETTER INSURANCE Issue 31, November 2012 The redeliberations are winding down, with an exposure draft in sight next year. Field and user input will be key in evaluating the operationality of the

More information

What are Swaps? Spring 2014. Stephen Sapp

What are Swaps? Spring 2014. Stephen Sapp What are Swaps? Spring 2014 Stephen Sapp Basic Idea of Swaps I have signed up for the Wine of the Month Club and you have signed up for the Beer of the Month Club. As winter approaches, I would like to

More information

CHAPTER 6. Different Types of Swaps 1

CHAPTER 6. Different Types of Swaps 1 CHAPTER 6 Different Types of Swaps 1 In the previous chapter, we introduced two simple kinds of generic swaps: interest rate and currency swaps. These are usually known as plain vanilla deals because the

More information

Interest Rate Risk Management for the Banking Book: Macro Hedging

Interest Rate Risk Management for the Banking Book: Macro Hedging Interest Rate Risk Management for the Banking Book: Macro Hedging Giuseppe Loforese Head of ALM - Intesa Sanpaolo Chair of ALM Hedge Accounting WG EBF Co-Chairman IRRBB WG - EBF AGENDA IRRBB: Macro Hedging

More information

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period

More information

Laurentian Bank reports net income of $20.6 million for the first quarter of 2007

Laurentian Bank reports net income of $20.6 million for the first quarter of 2007 FIRST QUARTER 2007 QUARTERLY REPORT FOR THE PERIOD ENDED JANUARY 31, 2007 REPORT TO SHAREHOLDERS Laurentian Bank reports net income of $20.6 million for the first quarter of 2007 SUMMARY RESULTS Laurentian

More information

2014 FINANCIAL REPORTS OF FIRSTONTARIO CREDIT UNION LIMITED

2014 FINANCIAL REPORTS OF FIRSTONTARIO CREDIT UNION LIMITED 2014 FINANCIAL REPORTS OF FIRSTONTARIO CREDIT UNION LIMITED CONTENTS Report on Management Responsibility 1 Loan Statistics 2 Report of the Audit Committee 3 Consolidated Financial Statements Independent

More information

DERIVATIVE ACCOUNTING & HEDGING UNDER FAS 133

DERIVATIVE ACCOUNTING & HEDGING UNDER FAS 133 DERIVATIVE ACCOUNTING & HEDGING UNDER FAS 133 By Jeffrey B. Wallace Managing Partner Greenwich Treasury Advisors LLC 1. Introduction...1 2. Historical Background...1 3. FAS 133 Framework...2 4. Derivative

More information

Appendix B: Cash Flow Analysis. I. Introduction

Appendix B: Cash Flow Analysis. I. Introduction I. Introduction The calculation of the economic value of the MMI Fund involves the estimation of the present value of future cash flows generated by the existing portfolio and future books of business.

More information

Notes to the Interim Consolidated Financial Information (unaudited)

Notes to the Interim Consolidated Financial Information (unaudited) Note 1. The Company and basis of presentation ABB Ltd and its subsidiaries (collectively, the Company) together form a leading global company in power and automation technologies that enable utility and

More information

Capital Adequacy: Asset Risk Charge

Capital Adequacy: Asset Risk Charge Prudential Standard LPS 114 Capital Adequacy: Asset Risk Charge Objective and key requirements of this Prudential Standard This Prudential Standard requires a life company to maintain adequate capital

More information

LCH.Clearnet SA CDS Clearing Procedures Section 2 Margin and Price Alignment Interest

LCH.Clearnet SA CDS Clearing Procedures Section 2 Margin and Price Alignment Interest LCH.Clearnet SA CDS Clearing Procedures Section 2 23.12.2013 Contents CONTENTS SECTION 2 MARGIN AND PRICE ALIGNMENT INTEREST 2.1 OVERVIEW... 1 2.2 MARGIN... 1 2.3 EXCESS COLLATERAL AND THE CLIENT COLLATERAL

More information

The International Certificate in Banking Risk and Regulation (ICBRR)

The International Certificate in Banking Risk and Regulation (ICBRR) The International Certificate in Banking Risk and Regulation (ICBRR) The ICBRR fosters financial risk awareness through thought leadership. To develop best practices in financial Risk Management, the authors

More information

New on the Horizon: Hedge accounting

New on the Horizon: Hedge accounting IFRS New on the Horizon: Hedge accounting September 2012 kpmg.com/ifrs Contents Closer alignment of hedge accounting and risk management 1 1. Almost there 2 2. How this could affect you 3 3. Setting the

More information

Interest Rate Swaps. Key Concepts and Buzzwords. Readings Tuckman, Chapter 18. Swaps Swap Spreads Credit Risk of Swaps Uses of Swaps

Interest Rate Swaps. Key Concepts and Buzzwords. Readings Tuckman, Chapter 18. Swaps Swap Spreads Credit Risk of Swaps Uses of Swaps Interest Rate Swaps Key Concepts and Buzzwords Swaps Swap Spreads Credit Risk of Swaps Uses of Swaps Readings Tuckman, Chapter 18. Counterparty, Notional amount, Plain vanilla swap, Swap rate Interest

More information

Accounting for securitizations treated as a financing (on-balance sheet) verses securitizations treated as a sale (off-balance sheet)

Accounting for securitizations treated as a financing (on-balance sheet) verses securitizations treated as a sale (off-balance sheet) Accounting for securitizations treated as a financing (on-balance sheet) verses securitizations treated as a sale (off-balance sheet) The hypothetical example below is provided for informational purposes

More information

Basics of Hedge Effectiveness Testing and Measurement

Basics of Hedge Effectiveness Testing and Measurement Basics of Hedge Effectiveness Testing and Measurement This is the second paper in an ongoing series that outlines the principles of hedge accounting under current and expected International and U.S. accounting

More information

December 2008 Revised for Disclaimer: October 2009

December 2008 Revised for Disclaimer: October 2009 This white paper is not authoritative and users are urged to refer directly to applicable authoritative pronouncements for the text of the technical literature. This document does not purport to be applicable

More information

IFRS 9 FINANCIAL INSTRUMENTS (2014) INTERNATIONAL FINANCIAL REPORTING BULLETIN 2014/12

IFRS 9 FINANCIAL INSTRUMENTS (2014) INTERNATIONAL FINANCIAL REPORTING BULLETIN 2014/12 IFRS 9 FINANCIAL INSTRUMENTS (2014) INTERNATIONAL FINANCIAL REPORTING BULLETIN 2014/12 Summary On 24 July 2014, the International Accounting Standards Board (IASB) completed its project on financial instruments

More information

FINANCIAL INFORMATION CONSOLIDATED FINANCIAL STATEMENTS. Risk management

FINANCIAL INFORMATION CONSOLIDATED FINANCIAL STATEMENTS. Risk management 167 Risk management Group risk management Group Risk Management supports the Board of Directors, the Executive Committee and the management teams of the Group companies in their strategic decisions. Group

More information

Case Study. Implementing IAS 39 with Fairmat

Case Study. Implementing IAS 39 with Fairmat Case Study Implementing IAS 39 with Fairmat Revision #3 In this tutorial we will show how international accounting standard 39 principles, which regulate how financial instruments must be accounted for

More information