-113-
portfolio that would mature before the start of the future year,
as ascertained from a “rolloff” schedule; (3) discounting the
future costs to present value; and (4) assigning 30 percent of
future costs to interest rate guarantees and the remaining 70
percent to swaps.
FNBC’s finance department was responsible for computing the
administrative costs adjustment. Its objective was to ascertain
the costs attributable to administering the existing swaps over
their existing life, assuming that there were no new deals. As
of the end of the quarter, FNBC (through its finance department)
calculated the administrative costs adjustment on a portfolio
(rather than swap-by-swap) basis; i.e., FNBC determined the
administrative costs for the entire portfolio and did not compute
or allocate those costs to individual swaps. FNBC did not
calculate a per-swap administrative expense amount.
For the relevant years, the amounts of the administrative
costs that FNBC estimated were needed to manage its swaps to
maturity were as follows:
Estimated
Year Administrative Costs
1989 $4,271,337
1990 5,253,337
1991 3,318,920
1992 3,843,770
1993 4,832,469
For Federal income tax purposes, FNBC reported the annual
increases or decreases to these estimated administrative costs as
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