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Derivative financial instruments for hedging purposes
 12 Months Ended
Dec. 31, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
21.
Derivative financial instruments for hedging purposes
 
As of December 31, 2014 and 2013, quantitative information on derivative financial instruments held for hedging purposes is as follows:
 
 
 
2014
 
2013
 
 
 
Nominal
 
Fair value(1)
 
Nominal
 
Fair value(1)
 
 
 
Amount
 
Asset
 
Liability
 
Amount
 
Asset
 
Liability
 
Fair value hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
 
167,865
 
 
17
 
 
1,285
 
 
494,558
 
 
4,625
 
 
1,403
 
Cross-currency interest rate swaps
 
 
282,490
 
 
1,062
 
 
31,556
 
 
269,488
 
 
2,783
 
 
6,834
 
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
 
891,500
 
 
2,691
 
 
1,805
 
 
453,000
 
 
393
 
 
243
 
Cross-currency interest rate swaps
 
 
56,000
 
 
-
 
 
5,547
 
 
126,308
 
 
6,392
 
 
-
 
Forward foreign exchange
 
 
126,058
 
 
8,554
 
 
-
 
 
88,130
 
 
684
 
 
92
 
Net investment hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange
 
 
5,146
 
 
-
 
 
94
 
 
5,810
 
 
340
 
 
-
 
Total
 
 
1,529,059
 
 
12,324
 
 
40,287
 
 
1,437,294
 
 
15,217
 
 
8,572
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net gain on the ineffective portion of hedging activities (2)
 
 
 
 
 
106
 
 
 
 
 
 
 
 
353
 
 
 
 
 
(1)
The fair value of assets and liabilities is reported within the derivative financial instruments used for hedging - receivable and payable lines in the consolidated balance sheets, respectively.
(2)
Gains and losses resulting from ineffectiveness and credit risk in hedging activities are reported within the derivative financial instruments and hedging line in the consolidated statements of income as derivatives financial instruments and hedging.
 
The gains and losses resulting from activities of derivative financial instruments and hedging recognized in the consolidated statements of income are presented below:
 
2014
 
 
 
 
 
 
 
 
Gain (loss)
 
 
 
 
 
 
 
 
 
 
 
reclassified from
 
 
 
 
 
 
 
 
 
 
 
accumulated
 
Gain (loss)
 
 
 
Gain (loss)
 
 
 
OCI to the consolidated
 
recognized on
 
 
 
recognized in OCI
 
 
 
statements of income
 
derivatives
 
 
 
(effective portion)
 
Classification of gain (loss)
 
(effective portion)
 
(ineffective portion)
 
Derivatives – cash flow hedge
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
 
(1,947)
 
 
 
 
 
 
 
 
 
Cross-currency interest rate swaps
 
 
(11,904)
 
Gain (loss) on foreign currency exchange
 
 
-
 
 
-
 
 
 
 
 
 
Interest income – loans
 
 
(4)
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange
 
 
8,633
 
Interest income – securities available-for-sale
 
 
(238)
 
 
-
 
 
 
 
 
 
Interest income – loans
 
 
(2,011)
 
 
-
 
 
 
 
 
 
Interest expense – borrowings and debt
 
 
-
 
 
-
 
 
 
 
 
 
Gain (loss) on foreign currency exchange
 
 
3,011
 
 
-
 
Total
 
 
(5,218)
 
 
 
 
768
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives – net investment hedge
 
 
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange
 
 
38
 
Gain (loss) on foreign currency exchange
 
 
-
 
 
-
 
Total
 
 
38
 
 
 
 
-
 
 
-
 
 
2013
 
 
 
 
 
 
 
 
Gain (loss)
 
 
 
 
 
 
 
 
 
 
 
reclassified from
 
 
 
 
 
 
 
 
 
 
 
accumulated
 
Gain (loss)
 
 
 
Gain (loss)
 
 
 
OCI to the consolidated
 
recognized on
 
 
 
recognized in OCI
 
 
 
statements of income
 
derivatives
 
 
 
(effective portion)
 
Classification of gain (loss)
 
(effective portion)
 
(ineffective portion)
 
Derivatives – cash flow hedge
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
 
226
 
 
 
 
 
 
 
 
 
Cross-currency interest rate swaps
 
 
(734)
 
Gain (loss) on foreign currency exchange
 
 
-
 
 
-
 
 
 
 
 
 
Interest income – loans
 
 
(11)
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange
 
 
1,544
 
Interest income – securities available-for-sale
 
 
(1,461)
 
 
-
 
 
 
 
 
 
Interest expense – borrowings and debt
 
 
31
 
 
-
 
 
 
 
 
 
Gain (loss) on foreign currency exchange
 
 
1,562
 
 
-
 
Total
 
 
1,036
 
 
 
 
121
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives – net investment hedge
 
 
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange
 
 
464
 
Gain (loss) on foreign currency exchange
 
 
-
 
 
-
 
Total
 
 
464
 
 
 
 
-
 
 
-
 
 
2012
 
 
 
 
 
 
 
 
Gain (loss)
 
 
 
 
 
 
 
 
 
 
 
reclassified from
 
 
 
 
 
 
 
 
 
 
 
accumulated
 
Gain (loss)
 
 
 
Gain (loss)
 
 
 
OCI to the consolidated
 
recognized on
 
 
 
recognized in OCI
 
 
 
statements of income
 
derivatives
 
 
 
(effective portion)
 
Classification of gain (loss)
 
(effective portion)
 
(ineffective portion)
 
Derivatives – cash flow hedge
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
 
217
 
 
 
 
 
 
 
 
 
Cross-currency interest rate swaps
 
 
3,740
 
Gain (loss) on foreign currency exchange
 
 
2,481
 
 
-
 
 
 
 
 
 
Interest income – loans
 
 
(564)
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange
 
 
1,742
 
Interest expense – borrowings and debt
 
 
(169)
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on foreign currency exchange
 
 
3,679
 
 
-
 
Total
 
 
5,699
 
 
 
 
5,427
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives – net investment hedge
 
 
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange
 
 
109
 
Gain (loss) on foreign currency exchange
 
 
-
 
 
-
 
Total
 
 
109
 
 
 
 
-
 
 
-
 
 
The Bank recognized in earnings the gain (loss) on derivative financial instruments and the gain (loss) of the hedged asset or liability related to qualifying fair value hedges, as follows:
 
2014
 
 
 
 
 
Gain
 
Gain
 
 
 
 
 
 
Classification in consolidated
 
(loss) on
 
(loss) on
 
Net gain
 
 
 
statement of income
 
derivatives
 
hedge item
 
(loss)
 
Derivatives - fair value hedge
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest income – securities available-for-sale
 
 
(1,800)
 
 
2,345
 
 
545
 
 
 
Interest income – loans
 
 
(361)
 
 
3,112
 
 
2,751
 
 
 
Interest expense – borrowings and debt
 
 
3,737
 
 
(16,204)
 
 
(12,467)
 
 
 
Derivative financial instruments and hedging
 
 
(994)
 
 
1,021
 
 
27
 
Cross-currency interest rate swaps
 
Interest income – loans
 
 
(853)
 
 
1,695
 
 
842
 
 
 
Interest expense – borrowings and debt
 
 
4,538
 
 
(10,031)
 
 
(5,493)
 
 
 
Derivative financial instruments and hedging
 
 
(24,335)
 
 
24,434
 
 
99
 
 
 
Gain (loss) on foreign currency exchange
 
 
-
 
 
-
 
 
-
 
 
 
 
 
 
(20,068)
 
 
6,372
 
 
(13,696)
 
 
2013
 
 
 
 
 
Gain
 
Gain
 
 
 
 
 
 
Classification in consolidated
 
(loss) on
 
(loss) on
 
Net gain
 
 
 
statement of income
 
derivatives
 
hedge item
 
(loss)
 
Derivatives - fair value hedge
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest income – securities available-for-sale
 
 
(3,088)
 
 
4,649
 
 
1,561
 
 
 
Interest income – loans
 
 
(39)
 
 
350
 
 
311
 
 
 
Interest expense – borrowings and debt
 
 
3,192
 
 
(16,204)
 
 
(13,012)
 
 
 
Derivative financial instruments and hedging
 
 
(3,622)
 
 
3,942
 
 
320
 
Cross-currency interest rate swaps
 
Interest income – loans
 
 
(795)
 
 
1,548
 
 
753
 
 
 
Interest expense – borrowings and debt
 
 
6,905
 
 
(12,452)
 
 
(5,547)
 
 
 
Derivative financial instruments and hedging
 
 
(6,117)
 
 
6,150
 
 
33
 
 
 
Gain (loss) on foreign currency exchange
 
 
(430)
 
 
458
 
 
28
 
 
 
 
 
 
(3,994)
 
 
(11,559)
 
 
(15,553)
 
 
2012
 
 
 
 
 
Gain
 
Gain
 
 
 
 
 
 
Classification in consolidated
 
(loss) on
 
(loss) on
 
Net gain
 
 
 
statement of income
 
derivatives
 
hedge item
 
(loss)
 
Derivatives - fair value hedge
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest income – securities available-for-sale
 
 
(2,982)
 
 
4,776
 
 
1,794
 
 
 
Interest expense – borrowings and debt
 
 
1,564
 
 
(12,022)
 
 
(10,458)
 
 
 
Derivative financial instruments and hedging
 
 
59
 
 
-
 
 
59
 
Cross-currency interest rate swaps
 
Interest income – loans
 
 
(239)
 
 
522
 
 
283
 
 
 
Interest expense – borrowings and debt
 
 
8,024
 
 
(11,187)
 
 
(3,163)
 
 
 
Derivative financial instruments and hedging
 
 
12
 
 
-
 
 
12
 
 
 
Gain (loss) on foreign currency exchange
 
 
5,873
 
 
(6,469)
 
 
(596)
 
 
 
 
 
 
12,311
 
 
(24,380)
 
 
(12,069)
 
 
For control purposes, derivative instruments are recorded at their nominal amount (“notional amount”) in memorandum accounts. Interest rate swaps are made either in a single currency or cross currency for a prescribed period to exchange a series of interest rate flows, which involve fixed for floating interest payments, and viceversa. The Bank also engages in certain foreign exchange trades to serve customers’ transaction needs and to manage the foreign currency risk. All such positions are hedged with an offsetting contract for the same currency. The Bank manages and controls the risks on these foreign exchange trades by establishing counterparty credit limits by customer and by adopting policies that do not allow for open positions in the credit and investment portfolio. The Bank also uses foreign currency exchange contracts to hedge the foreign exchange risk associated with the Bank’s equity investment in a non-U.S. dollar functional currency foreign subsidiary. Derivative and foreign exchange instruments negotiated by the Bank are executed mainly over-the-counter (OTC). These contracts are executed between two counterparties that negotiate specific agreement terms, including notional amount, exercise price and maturity.
 
The maximum length of time over which the Bank has hedged its exposure to the variability in future cash flows on forecasted transactions is 6.48 years.
 
The Bank estimates that approximately $222 thousand of losses reported in OCI as of December 31, 2014 related to forward foreign exchange contracts are expected to be reclassified into interest income as an adjustment to yield of hedged loans during the twelve-month period ending December 31, 2015.
 
The Bank estimates that approximately $220 thousand of losses reported in OCI as of December 31, 2014 related to forward foreign exchange contracts are expected to be reclassified into interest income as an adjustment to yield of hedged available-for-sale securities during the twelve-month period ending December 31, 2015.
 
Types of Derivatives and Foreign Exchange Instruments
 
Interest rate swaps are contracts in which a series of interest rate flows in a single currency are exchanged over a prescribed period. The Bank has designated a portion of these derivative instruments as fair value hedges and a portion as cash flow hedges. Cross currency swaps are contracts that generally involve the exchange of both interest and principal amounts in two different currencies. The Bank has designated a portion of these derivative instruments as fair value hedges and a portion as cash flow hedges. Forward foreign exchange contracts represent an agreement to purchase or sell foreign currency at a future date at agreed-upon terms. The Bank has designated these derivative instruments as cash flow hedges and net investment hedges.
 
In addition to hedging derivative financial instruments, the Bank has derivative financial instruments held for trading purposes that have been disclosed in Note 12.