Navy Federal Credit Union 2011 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    VISION Navy Federal Credit Union will perform with such excellence that all present and potential members will choose Navy Federal as the preferred source for their primary lifetime financial services.

  • Page 3
    ...As of December 31 2010 Dollars in millions 2011 $ 46,925.5 $ 31,486.6 $ 24,146.2 $ $ $ $ $ 9,493.8 5,078.8 3,240.5 1,385.0 420.9 Assets Loans Outstanding Shares, Checking, MMSAs, IRAs Share Certificates Reserves Gross Income Non-interest Expenses Dividends Mortgage Loans Serviced $ 44,198.4 $ 31...

  • Page 4
    ....2 40 loans/savings Dollars in billions 2010 30 20 10 4,000,000 0 2010 2011 3,000,000 Assets Dollars in billions 2,000,000 1,000,000 0 3,637,213 members 2 2011 ANNUAL REPORT Leî, to right: John A. Lockard, Chairman; Cutler Dawson, President 2010 3,867,127 2011 $31.5 30 2011 $33...

  • Page 5
    ... trust our members place in us. New members helped bolster our checking account portfolio, which added 410,000 new accounts and ended the year with over two million accounts, over half of which are funded via Direct Deposit. Members needing loans found credit readily available at Navy Federal...

  • Page 6
    4 2011 ANNUAL REPORT Leî, to right: Joseph P. Mulloy; Kenneth R. Burns, First Vice Chairman; Edward R. Cochrane Jr.; Grisell F. Collazo, Secretary; Terry J. Benedict; Henry J. Sanford

  • Page 7
    2011 BOARD OF DIRECTORS Leî, to right: John A. Lockard, Chairman of the Board; Cutler Dawson, Treasurer; Bruce B. Engelhardt, Second Vice Chairman; William H. Hilarides; William P. Mizerak FAVY FEDERAL-EFDURIFG STREFGTH 5

  • Page 8
    6 2011 ANNUAL REPORT

  • Page 9
    ...its commitment to providing free Visa® Debit Cards and access to no-service-fee, interest-paying checking accounts. e outcome: tens of thousands of members switched their checking accounts to us, while even more new members joined Navy Federal and opened checking accounts. Being able to connect...

  • Page 10
    8 2011 ANNUAL REPORT

  • Page 11
    ...-rate-ever credit card balance transfer offer. We slashed auto loan rates to 1.79% APR knowing that, for many of our young members, purchasing a car is high on their list of priorities. In addition, active duty and retired military members could enjoy an additional ¼% rate discount. We helped...

  • Page 12
    10 2011 ANNUAL REPORT

  • Page 13
    ... Navy Federal Visa Check Card will be upgraded so that members can receive cash back at the checkout line. is long-anticipated enhancement will make a Navy Federal checking account even more popular with members. Plans are also underway to introduce two new adjustable-rate mortgage products...

  • Page 14
    12 2011 ANNUAL REPORT Leî, to right: Dietrich H. Kuhlmann III; Michael C. Wholley, Chairman; Anthony M. Kurta; Edward R. Cochrane Jr.; Neil W. T. Hogg

  • Page 15
    ... to all letters and emails it receives from Navy Federal members. By maintaining an open line of communication with the membership, the committee helps to ensure that you are provided the quality of service that you deserve as member-owners of your credit union. Based on the results of the quarterly...

  • Page 16
    ... Brokerage Services, LLC (NFBS) and Navy Federal Asset Management, LLC (NFAM) are not NCUA/NCUSIF or otherwise federally insured, are not guaranteed or obligations of the credit union, are not offered, recommended, sanctioned, or encouraged by the Federal Government, and may involve investment risk...

  • Page 17
    ... the Board of Directors of The Navy Federal Credit Union: I n our opinion, the accompanying consolidated statements of financial condition and the related consolidated statements of income, of changes in reserves and undivided earnings, and of cash flows for the years then ended present fairly, in...

  • Page 18
    ... interest receivable Fixed assets NCUSIF deposit Mortgage servicing rights Prepaid expenses Intangible assets, net of amortization Other assets Total assets LIABILITIES AND MEMBERS' EQUITY Members' accounts Savings accounts Money market savings accounts Checking accounts Share certificate accounts...

  • Page 19
    ... on mortgage loan sales, net Gain on investment sales Mortgage servicing Credit card interchange Check card interchange Payment protection plan ATM convenience Overdrawn checking fee Other Total non-interest income Non-interest expense Salaries and employee benefits Office operating Loan servicing...

  • Page 20
    ... activities: Provision for loan losses Depreciation of fixed assets Loss on disposal of fixed assets Realized loss on membership capital in other credit unions Gain on sale of investments Amortization of loan origination fees and costs Loss on change of value in mortgage servicing rights Mortgage...

  • Page 21
    ...)/decrease in loans to members Purchase of fixed assets Sale of fixed assets Increase in deposit to NCUSIF Proceeds from REO sales Net cash received in acquisition of USA Federal Net cash used in investing activities Cash flows from financing activities Net increase in members' accounts-other Net...

  • Page 22
    ...membership, which includes military and civilian personnel who are or were employed by the Department of the Defense and their families. Navy Federal Financial Group (NFFG) is a wholly-owned credit union service organization that provides investment, insurance and other financial services to members...

  • Page 23
    ...value option for mortgage loans awaiting sale. Mortgage loans awaiting sale are sold with the mortgage servicing rights retained by Navy Federal. Loans are removed from the Consolidated Statements of Financial Condition as assets and sales treatment is applied when, pursuant to ASC 860-10, Transfers...

  • Page 24
    ... by loan product and current economic conditions and trends that may affect a borrower's ability to pay. The allowance for loan and lease losses is reviewed on a monthly basis and the provision that is charged to expense is adjusted accordingly. 8 NAVY FEDERAL CREDIT UNION Acquired Credit-Impaired...

  • Page 25
    ... in the fair value of derivative financial instruments are recorded on the Consolidated Statements of Income. Navy Federal owned the following derivative financial instruments at December 31, 2011 and 2010: mortgage loan commitments to members at specified interest rates and forward sales contracts...

  • Page 26
    ... current year presentation. Note 2: Acquisition of USAFCU Navy Federal acquired USAFCU on October 1, 2010 without cash consideration based on an agreement between Navy Federal's and USAFCU's Boards of Directors. The goals of this acquisition were to increase Navy Federal's core deposit funding base...

  • Page 27
    ... the Federal Reserve Bank and $3.2 million as a form of collateral for a business agreement with a major credit card issuer as of December 31, 2010. All restricted cash amounts except membership capital shares are classified as Other Assets on the Consolidated Statements of Financial Condition. 2011...

  • Page 28
    ...as follows: (dollars in thousands) December 31, 2011 Held-to-maturity U.S. government and federal agency securities Residential mortgage-backed securities Total held-to-maturity Available-for-sale Residential mortgage-backed securities Commercial mortgage-backed securities Federal agency securities...

  • Page 29
    ..., of Federal Home Loan Bank of Atlanta (FHLBA) stock as of December 31, 2011 and 2010. FHLBA stock is a restricted investment and is carried at cost, which is par value. As a member of the FHLBA, Navy Federal has access to a $9.2 billion line of credit facility. All debt securities were reviewed...

  • Page 30
    ... and membership capital shares in corporate credit unions: (dollars in thousands) 2011 $ - 6,741 7 50 6,798 $ 2010 2,500 6,741 61,607 4,006 74,854 Certificates of deposit Membership capital shares Cash on deposit in money market accounts Cash collateral Total $ $ 14 NAVY FEDERAL CREDIT UNION

  • Page 31
    ... deferred income Mortgage Loans Awaiting Sale Fixed rate Unrealized gains/losses In process Unamortized deferred income Equity loans Fixed equity Unamortized cost Home equity lines of credit Unamortized cost Less: Allowance for loan losses Total loans to members $ $ 2011 FINANCIAL SECTION 15

  • Page 32
    ... of member loans by current FICO scores for credit card, consumer and real estate loans. A FICO score takes into account various factors including payment history, current level of indebtness, types of credit used as well as length of credit history. The credit scores are updated every two months on...

  • Page 33
    ... expected cash flows discounted at the loan's effective rate. The following table summarizes the financial impact in terms of year-end impairment recognized on restructurings occurring during 2011 and 2010: (dollars in thousands) Consumer Credit card Real estate Total Impairment Amount at Year-End...

  • Page 34
    ... days delinquent within the first 12 months totaled $5.3 million which included $0.4 million of real estate, $1.3 million of consumer loans and $3.6 million of credit card. For TDRs, the cumulative total loan amount, related impairment, average loan balance and interest recognized for the year ended...

  • Page 35
    ... Servicing Rights (MSRs) when mortgage loans are sold and Navy Federal retains the right to service the loans. Navy Federal records MSRs at fair value with changes in fair value recorded and separately disclosed in the Consolidated Statement of Income. MSR valuation is sensitive to interest rate...

  • Page 36
    ... increase or decrease. Navy Federal received $57.5 million and $55.4 million in the years ended December 31, 2011 and 2010, respectively, in mortgage loan servicing fees. Navy Federal's servicing fees are priced based on agency-required minimums. Late charges and miscellaneous fees are recognized as...

  • Page 37
    ... as SFAS No. 133), Navy Federal accounts for both the mortgage loan commitments and the forward sales contracts as derivative instruments on its Consolidated Statements of Financial Condition at fair value, with changes in fair value included in current earnings. These derivative instruments are...

  • Page 38
    ... rates range between 3% and 4%. Management has the intent and ability to fill the incremental balance of forward sales contracts over the open mortgage loan commitments with the balance of closed loans classified on the Consolidated Statements of Financial Condition as mortgage loans awaiting sale...

  • Page 39
    Unused commitment balances as of December 31, 2011 and 2010 were as follows: (dollars in thousands) Credit cards Overdraft lines of credit Home equity lines of credit Pre-approved auto loans Utility deposit guarantee programs Letter of credit Total $ $ 2011 7,760,576 707,678 973,931 187,930 2,...

  • Page 40
    ... for financial institutions and a "core deposit intangible" asset represents the fair value of cost savings derived from available core deposits acquired relative to the cost of alternative funding. The fair value of $2.0 million recorded at October 1, 2010 was associated with money market accounts...

  • Page 41
    ... by the Board of Directors, based on an evaluation of current and future market conditions. Member deposit accounts as of December 31, 2011 and 2010 were summarized as follows: (dollars in thousands) Money market Savings Member escrow Checking Share and IRA certificates IRA shares IRA MMSA Investor...

  • Page 42
    ... on members' deposit accounts totaled as follows: (dollars in thousands) Money market Savings Checking Share and IRA certificates IRA shares Total dividends $ $ 2011 46,386 22,545 12,591 337,009 2,330 420,861 2010 $ 56,135 23,329 10,868 372,601 2,597 465,530 $ 26 NAVY FEDERAL CREDIT UNION

  • Page 43
    ...: Borrowed Funds A summary of Navy Federal's short-term and long-term borrowings at December 31 was as follows: (dollars in thousands) As of December 31, 2011 Maturities Fixed or Floating Fixed Fixed Floating Fixed Fixed Fixed Payment Outstanding Weighted Average Rate 0.14% Coupon Short-term FHLB...

  • Page 44
    ...Fixed Fixed Fixed Fixed Payment Outstanding Weighted Average Rate 0.23% 0.27% Coupon Short-term FHLB borrowings for purpose of positive arbitrage 2011 Other FHLB short-term borrowings 2011 FHLB long-term borrowings maturing in next 12 months 2011 2011 Total short-term borrowings Long-term FHLB long...

  • Page 45
    ... in mortgage loans held for investment. Navy Federal had the following unused lines of credit as of December 31: (dollars in thousands) 2011 $ 1,596,997 3,608,095 120,000 FHLB Federal Reserve Corporate Credit Unions Note 18: Retirement Benefit Plans Navy Federal Credit Union Employees' Retirement...

  • Page 46
    ... cost/(income) Discount rate: for cost of special/contractual termination benefits Expected return on plan assets Rate of compensation increase 2011 5.80% 4.95% 7.50% 3.50% 2010 5.95% N/A 7.60% 4.00% Retiree Medical 2011 2010 5.80% 5.95% 4.95% N/A N/A N/A N/A N/A 30 NAVY FEDERAL CREDIT UNION

  • Page 47
    ... expected average rate to be earned on plan assets and future plan contributions to provide for the benefits included in the benefit obligations. The amounts recognized in Accumulated Other Comprehensive Income for the years ended December 31 consist of: Pension (dollars in thousands) 2011 $ $ 19...

  • Page 48
    ... date for the pension and retiree medical benefit plan for 2011 and 2010 was December 31. The investment strategy of the Navy Federal Credit Union Employees' Retirement Plan is to employ an investment approach whereby a mix of equity and fixed income investments are used to maximize the long-term...

  • Page 49
    ... within plan assets at December 31, 2011, as equity and fixed income assets are broadly diversified. Navy Federal 401(k) Savings Plan The Navy Federal 401(k) Savings Plan is a defined contribution plan where employees can contribute pre-tax money to a 401(k) retirement account and receive employer...

  • Page 50
    ... savings opportunity to highly compensated employees. The annual deferral amount allowed mirrors the 401(k) Plan, and contributions are held by Navy Federal and earn monthly interest based on Navy Federal's gross income for the month divided by the average earnings on assets (loans and investments...

  • Page 51
    ... the application of lower of cost or market accounting or the write-down of individual assets due to impairment. The following is a description of the valuation methodologies used by Navy Federal for the assets measured at fair value: Securities Available-for-Sale (AFS) Navy Federal receives pricing...

  • Page 52
    ... interest rate risk. These derivatives (assets and liabilities) are valued using quoted market prices of similar assets and are classified within Level 2 of the fair value hierarchy. Mortgage Loans Awaiting Sale (MLAS) Mortgage loans awaiting sale comprise those loans that Navy Federal intends...

  • Page 53
    ...942 Available-for-sale Residential mortgage-backed securities Commercial mortgage-backed securities Federal agency securities Treasury securities Bank notes Total available-for-sale Mortgage loans awaiting sale Mortgage servicing rights Other assets-Derivative commitments Total assets at fair value...

  • Page 54
    ... Purchases, issuances, and settlements Balance, end of year Change in unrealized gains/(losses) related to financial instruments still held at December 31, 2010 Fair Value at December 31, 2010 Mortgage Servicing Rights $ 168,699 (39,103) 31,554 161,150 $ $ (28,824) 38 NAVY FEDERAL CREDIT UNION

  • Page 55
    ... to Members For certain residential mortgages, fair value is estimated using the quoted market prices for securities backed by similar loans. The fair value of other types of loans, such as consumer and equity loans, is estimated by discounting the future cash flows using the current market rates at...

  • Page 56
    ...at the reporting date. For IRA Certificate and Share Certificate accounts, fair value is estimated using the discounted value of future cash flows based upon market interest rates and remaining maturity. Derivative Instruments and Hedging Activities Navy Federal does not receive loan commitment fees...

  • Page 57
    ...-bearing deposits Other investments Investment in FHLB-Atlanta Mortgage servicing assets Mortgage loans awaiting sale Other assets-Derivative commitments Loans, net of allowance for loan losses Financial liabilities and equity FHLB debt Other liabilities-Derivative commitments Members' accounts ASC...

  • Page 58
    ... used a single cash flow stream model and market prices of similar assets to value the securities. The fair value of Navy Federal's on-balance sheet securitizations at December 31, 2011 and 2010 was $2.1 billion and $2.4 billion, respectively. The unpaid principal balance of the securitized loans...

  • Page 59
    ...between Navy Federal and the transferee on loans previously transferred with continuing involvement: (dollars in millions) Cash from sale of mortgage loans and mortgage-backed securities Repurchase of previously transferred loans Contractual servicing fees received Total $ December 31, 2011 2,948...

  • Page 60
    Your savings federally insured to $100,000 © 2012 Navy Federal NFCU 8010-F (3-12) National Credit Union Administration, a U.S. Government Agency

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    PO Box 3000, Merrifield, VA 22119-3000 navyfederal.org Use of released Department of Defense imagery does not constitute product or organizational endorsement of any kind by the Department of Defense. Federally insured by NCUA. © 2012 Navy Federal NFCU 8010 (3-12)