Like other firms, the company initially figured that the terms of interest rate swaps used in hedging evenly matched the terms of the items hedged - and that they’d be off the hook for effectiveness testing of the hedging relationship on an ongoing basis.
Oops. Not to be. It turns out that the interest rate swaps employed contained an embedded written option that allowed the counterparty to terminate the interest rate swap under certain conditions, while the hedged items - FHLB advances - did not contain similar terms. Lacking absolute parity and a match of the critical terms, the firm decided that the initial assessment was wrong.
Fluctuations in the value of the interest rate swaps should have been included in other non-interest income resulting in quarterly and annual mark-to-market adjustments instead of in other comprehensive income. That’s how it will be treated in the revisions to the past financials.
ACFC 1-yr chart: