-107-
market rates on a present value basis. Realized and
unrealized gains and losses are included in noninterest
income as trading account profits, foreign exchange
trading profits and equities securities gains. Where
appropriate, compensation for credit risk and ongoing
servicing is deferred and taken into income over the
term of the derivatives. Any gain or loss on the early
termination of an interest rate swap used in trading
activities is recognized currently in trading account
profits.
This description related exclusively to the income
statements and the balance sheets. It is different from the
description used for the fair value disclosure in the footnotes,
which omitted any reference to adjustments for administrative
costs and/or credit risk. FNBC used midmarket values for SFAS
No. 107 footnote disclosure purposes, and it used adjusted
midmarket values for other financial reporting purposes.
B. Uses of Valuation
FNBC was required to value its swaps in conformance with
regulatory accounting principles (RAP), GAAP, and Federal income
tax laws. Tax considerations were not a factor when FNBC
determined how it would calculate the value of its swaps, and
FNBC did not consult with anyone to ascertain whether its
adjustments were appropriate for section 475 purposes. Tax
considerations were not mentioned when the valuation methodology
was presented to FNBC and its parent’s board of directors.
Midmarket values were used in the presentation to the board.
There is no line item on any report that FNBC filed with the
OCC that set forth, or specifically identified, the amount of
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