Derivative Activities

12 Months Ended

Dec. 31, 2012

Derivative Activities [Abstract]

DERIVATIVE ACTIVITIES

NOTE 10— DERIVATIVE ACTIVITIES

During the year endedDecember 31, 2012, losses of $41.1 million were recognized and reflected as “Derivative Activities” in the audited consolidated statements of operations. These were mainly related to realized losses of $37.5 million due to the terminations of forward-settlement swaps with an aggregate notional amount of $900 million and to losses of $3.5 million recorded on options purchased in July 2012 to enter into interest rate swaps, not designated as cash flow hedges or fair value hedges, with an aggregate notional amount of $200 million, which were terminated in December 2012. During the yearended December 31, 2011, losses of $13.2 million were recognized and reflected as “Derivative Activities” in the audited consolidated statements of operations. These losses were mainly due to realized losses of $4.3 million from the termination of forward-settlement swaps with a notional amount of $1.25billion. During the year ended December 31, 2010, losses of $36.8 million were recognized and reflected as “Derivative Activities” in the audited consolidated statements of operations. These losses included realized losses of $42 million due to terminations of forward-settlement swaps with an aggregate notional amount of $900 million.

The following table details “Derivative Assets” and “Derivative Liabilities” as reflected in the consolidatedstatements of financial condition at December 31, 2012 and December 31, 2011:

	December 31,		December 31,
	2012		2011
	(In thousands)
Derivative assets:
Options tied to S&P 500 Index	$	13,233	$	9,317
Interest rate swaps not designated as hedges		8,426		-
Interest rate caps		230		-
	$	21,889	$	9,317
Derivative liabilities:
Interest rate swaps designated as cash flow hedges	$	17,665	$	47,425
Interest rate swaps not designated as hedges		8,365
Interest rate caps		230
	$	26,260	$	47,425

Interest Rate Swaps

The Group enters into interest rate swap contracts to hedge the variability of future interest cash flows offorecasted wholesale borrowings, attributable to changes in a predetermined variable index rate. Once the forecastedwholesale borrowings transactions occur, the interest rate swap will effectively fix the Group's interest paymentson an amount of forecasted interest expense attributable to the variable index rate corresponding to the swapnotional stated rate. These forward-settlement swaps are designated as cash flow hedges for the forecastedwholesale borrowings transactions and are properly documented as such, and therefore, qualify for cash flow hedgeaccounting. Changes in the fair value of these derivatives are recorded in accumulated other comprehensiveincome to the extent there is no significant ineffectiveness in the cash flow hedging relationships. Currently, theGroup does not expect to reclassify any amount included in other comprehensive income related to theseinterest rate swaps to earnings in the next twelve months.

The following table shows a summary of these swaps and their terms at December 31, 2012:

	Notional		Fixed	Variable	Trade	Settlement	Maturity
Type	Amount		Rate	Rate Index	Date	Date	Date
	(In thousands)
Interest Rate Swaps	$	25,000	2.4365%	1-Month Libor	05/05/11	05/04/12	05/04/16
		25,000	2.6200%	1-Month Libor	05/05/11	07/24/12	07/24/16
		25,000	2.6350%	1-Month Libor	05/05/11	07/30/12	07/30/16
		50,000	2.6590%	1-Month Libor	05/05/11	08/10/12	08/10/16
		100,000	2.6750%	1-Month Libor	05/05/11	08/16/12	08/16/16
	$	225,000

An unrealized loss of $17.7 million was recognized in accumulated other comprehensive income related to the valuation of these swaps at December 31, 2012, and the related liability is being reflected in the accompanying consolidated statements of financial condition.

At December 31, 2012, interest rate swaps not designated as hedging instruments that were offered to clients represented an asset of $8.4millionand were included as part of derivative assets in the consolidated statements of financial position.At December 31, 2012, interest rate swaps not designated as hedging instruments that are the mirror-images of the derivatives offered to clients represented a liability of $8.4millionand were included as part of derivative liabilities in the consolidated statements of financial position.

The following table shows a summary of these interest rate swaps not designated as hedging instruments and their terms at December 31, 2012:

	Notional		Fixed	Variable	Settlement	Maturity
Type	Amount		Rate	Rate Index	Date	Date
	(In thousands)
Interest Rate Swaps - Derivatives Offered to Clients	$	4,324	5.1300%	1-Month Libor	07/03/06	07/03/16
		12,500	5.5050%	1-Month Libor	04/11/09	04/11/19
		29,284	4.6200%	1-Month Libor	12/31/07	12/31/14
		19,944	4.6200%	1-Month Libor	12/31/07	12/31/14
		1,913	3.5000%	1-Month Libor	03/28/08	04/01/13
		2,070	3.8500%	1-Month Libor	04/18/08	04/18/13
		1,187	5.1500%	3-Month Libor	10/24/08	10/24/13
	$	71,222
Interest Rate Swaps - Mirror Image Derivatives	$	4,324	5.1300%	1-Month Libor	07/03/06	07/03/16
		12,500	5.5050%	1-Month Libor	04/11/09	04/11/19
		29,284	4.5600%	1-Month Libor	12/31/07	12/31/14
		19,944	4.5600%	1-Month Libor	12/31/07	12/31/14
		1,913	3.5000%	1-Month Libor	03/28/08	04/01/13
		2,070	3.8000%	1-Month Libor	04/18/08	04/18/13
		1,187	4.9550%	3-Month Libor	10/24/08	10/24/13
	$	71,222

Options Tied to Standard & Poor's 500 Stock Market Index

The Group has offered its customers certificates of deposit with an option tied to the performance of the S&P 500 Index. The Group uses option agreements with major broker-dealers to manage its exposure to changes in this index. Under the terms of the option agreements, the Group receives the average increase in the month-end value of the index in exchange for a fixed premium. The changes in fair value of the option agreements used to manage the exposure in the stock market in the certificates of deposit are recorded in earnings. At December 31, 2012 and December 31, 2011, the purchased options used to manage the exposure to the S&P 500 Index on stock indexed deposits represented an asset of $13.2 million (notional amount of $66.6million) and $9.3 million (notional amount of $130.9million), respectively, and the options sold to customers embedded in the certificates of deposit and recorded as deposits in the consolidated statements of financial condition, represented a liability of $12.7million (notional amount of $62.3million) and $9.4million (notional amount of $125.8million), respectively.

At December 31, 2012, the yearly contractual maturities of options tied to the S&P Index were as follows:

	Derivative asset		Derivative liability
	(S&P purchased		(S&P embedded
	options)		options)
Year Ending December 31,	Minimum Rent		Minimum Rent
	(In thousands)		(In thousands)
2013		38,590		35,187
2014		17,340		16,519
2015		7,330		7,419
2016		3,375		3,191
	$	66,635	$	62,316

Interest rate caps

The Group has entered into interest rate cap transactionswith various clients with floating-rate debt who wish to protect their financial results against increases in interest rates. The Group simultaneously enters into mirror-image interest rate cap transactions with financial counterparties. None of these cap transactions qualify for hedge accounting; therefore, they are marked to market through earnings.The outstanding notional amount of interest rate caps at December 31, 2012 was $94.0million. At December 31, 2012, the interest rate caps sold to clients represented a liability of $230 thousand and were included as part of derivative liabilities in the audited consolidated statements of financial position. At December 31, 2012, the interest rate caps purchased as mirror-images represented an asset of $230 thousand and were included as part of derivative assets in the audited consolidated statements of financial position. At December 31, 2011, the Group did not have interest rate caps outstanding.

Other borrowings

Other borrowings, presented in the consolidated statement of financial condition within Advances from FHLB and other borrowings, amounted to $7.7 million and $6.0 million at December 31, 2012 and 2011 with a weighted average interest rate of0.67% and 0.0%, respectively,which mainly consists of unsecured fixed-rate borrowings.