Navy Federal Credit Union 2014 Annual Report Download

Download and view the complete annual report

Please find the complete 2014 Navy Federal Credit Union annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 72

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72

[ 1 ]
NAVY FEDERAL CREDIT UNION 2014 ANNUAL REPORT
2014 A YEAR
IN REVIEW
Federally insured by NCUA.
NAVY FEDERAL CREDIT UNION • 2014 ANNUAL REPORT
2014 A YEAR
IN REVIEW

Table of contents

  • Page 1
    NAVY FEDERAL CREDIT UNION • 2014 ANNUAL REPORT 2014 A YEAR IN REVIEW 2014 A YEAR IN REVIEW NAVY FEDERAL CREDIT UNION Federally 2014 ANNUAL REPORT [ 1 ] by insured NCUA.

  • Page 2
    2014 A YEAR IN REVIEW VISION STATEMENT Be the most preferred and trusted financial institution serving the military and their families. 2014 ANNUAL REPORT

  • Page 3
    ... 32,996.5 11,157.7 6,971.9 4,169.6 2,153.5 351.8 40,874.0 Assets Loans Outstanding Savings, Checking, MMSAs, IRAs Share Certificates Members' Equity Gross Income Non-interest Expense Dividends Mortgage Loans Serviced MEMBERS 4,688,523 5,297,943 NAVY FEDERAL CREDIT UNION [3] 2014 ANNUAL REPORT

  • Page 4
    2014 A YEAR IN REVIEW "I joined Navy Federal after a fellow Marine and I were debating the pros and cons of credit unions and banks. Seven years later, this is still my installation of choice, having helped me build credit, establish my life, and learn to manage my finances. Thank you, Navy Fed!"...

  • Page 5
    ... $2 billion in credit cards and consumer and mortgage loans. Market-leading rates helped our members continue their habit of saving money for the future. Total savings increased $4.1 billion to reach $44.2 billion, an increase of over 10%. Member investments with Navy Federal Financial Group, our...

  • Page 6
    2014 A YEAR IN REVIEW Navy Federal's credit cards have been nationally recognized as providing excellent value with rewards programs that are among the richest in the country. NAVY FEDERAL CREDIT UNION [6] 2014 ANNUAL REPORT

  • Page 7
    ... using their mobile devices, an increase of 67%, clearly demonstrating that the way members choose to fund and manage their accounts has gone digital. This was also the year that on-the-spot issuance of debit cards became available at all branch offices, a real convenience for members just opening...

  • Page 8
    2014 A YEAR IN REVIEW Navy Federal has always taken great pride in the service we provide our members, meeting their financial needs no matter where their lives take them-across the country or around the world. NAVY FEDERAL CREDIT UNION [8] 2014 ANNUAL REPORT

  • Page 9
    ... access to their accounts, and advice and counsel to help them make sound financial decisions. In 2014, we made great strides in improving our service proposition, whether via mobile device, online, over the phone, through social media, or within our branch office network. NAVY FEDERAL CREDIT UNION...

  • Page 10
    2014 2014 A YEAR IN A REVIEW YEAR IN REVIEW Our mobile app continues to garner very favorable reviews, averaging 4.5 stars for iTunes, Android, and Kindle Fire. NAVY FEDERAL CREDIT UNION [ 10 ] 2014 ANNUAL REPORT

  • Page 11
    ...72% increase over 2013. Use of Navy Federal Online Account Access also continues to be strong. In 2014, we completed the migration of members to the new Account Access platform. Last year, Account Access booked over $6 billion in consumer loan and credit cards combined. The number of active Bill Pay...

  • Page 12
    2014 A YEAR IN REVIEW NAVY FEDERAL CREDIT UNION [ 12 ] 2014 ANNUAL REPORT

  • Page 13
    ...A YEAR IN REVIEW We were named as one of FORTUNE Magazine's 100 Best Places to Work in 2014 for the fourth time and remain the only credit union selected for this prestigious list. For the eighth year, Navy Federal's investment in our products, our services, and the teammates who serve our members...

  • Page 14
    2014 2014 A YEAR IN REVIEW BOARD OF DIRECTORS John A. Lockard Chairman of the Board Bruce B. Engelhardt First Vice ...Cutler Dawson Treasurer Kenneth R. Burns Secretary Kirk A. Foster Neil W. T. Hogg William P. Mizerak Henry J. Sanford NAVY FEDERAL CREDIT UNION [ 14 ] 2014 ANNUAL REPORT

  • Page 15
    2014 A YEAR IN REVIEW SUPERVISORY COMMITTEE Michael C. Wholley Chairman Kirk A. Foster Anthony M. Kurta Patrick J. McClanahan Pasquale M. Tamburrino Jr. NAVY FEDERAL CREDIT UNION [ 15 ] 2014 ANNUAL REPORT

  • Page 16
    ...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. The independent accounting firm of PricewaterhouseCoopers...

  • Page 17
    .... or its affiliates. Navy Federal products offered through Navy Federal Brokerage Services, LLC (NFBS) and Navy Federal Asset Management, LLC (NFAM). Representatives registered with NFBS and NFAM (Members FINRA/SIPC). Trust Services available through MEMBERS Trust Company, 14025 Riveredge Dr., Suite...

  • Page 18
    NAVY FEDERAL CREDIT UNION w 2014 ANNUAL REPORT

  • Page 19
    ... of Navy Federal Credit Union, which comprise the consolidated statements of financial condition as of December 31, 2014 and December 31, 2013, and the related consolidated statements of income, comprehensive income, changes in members' equity and of cash flows for the years then ended. Management...

  • Page 20
    Consolidated Statements of Financial Condition As of December 31, (dollars in thousands) 2014 2013 Assets Cash Short-term investments Securities available-for-sale Securities held-to-maturity Mortgage loans awaiting sale Loans to members, net of allowance for loan losses of $752,835 at December ...

  • Page 21
    2014 | A YEAR IN REVIEW Consolidated Statements of Income For the Year Ended December 31, (dollars in thousands) 2014 2013 Interest income Loans to members Securities available-for-sale Securities held-to-maturity Other investments $ 2,798,030 299,729 7,389 13,489 $ 2,433,339 271,641 10,963 8,797...

  • Page 22
    ... financial statements. Consolidated Statements of Changes in Members' Equity Accumulated Other Comprehensive Income (Loss) Regular Reserve (dollars in thousands) Capital Reserve 5,316,885 $ - - 695,838 Undivided Earnings Pension Accounting Adjustments (358,894) $ 257,335 - - Availablefor-Sale...

  • Page 23
    2014 | A YEAR IN REVIEW Consolidated Statements of Cash Flows (dollars in thousands) For the Year Ended December 31, 2014 $ 718,830 $ 2013 695,838 Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan ...

  • Page 24
    ...of 90 days or less. As of December 31, 2014 and 2013, all short-term investments were carried at cost, which approximated fair value. Investments Navy Federal's securities are classified as held-to-maturity (HTM) or available-for-sale (AFS) in accordance with ASC 320-10, Investments-Debt and Equity...

  • Page 25
    ... using the simple-interest method on the UPB on a daily basis except for credit card loans, for which interest is calculated by applying the periodic rate to the average daily balance outstanding on the member's monthly statement date. When payments on a loan become past due by more than 90 days...

  • Page 26
    ...'s initial investment in loans or debt securities acquired in a transfer. Acquired loans are considered to be impaired if Navy Federal does not expect to receive all contractually required cash flows and the loans have exhibited credit deterioration since origination. Credit deterioration can...

  • Page 27
    ...amount is deferred. Navy Federal reviews its operating leases annually for the existence of asset retirement obligations that are accrued, when material, pursuant to ASC 410-20, Asset Retirement Obligations. NCUSIF Deposit The deposit in the National Credit Union Share Insurance Fund (NCUSIF) is in...

  • Page 28
    ...its Consolidated Statements of Financial Condition. See Note 9 for details. Economic Hedges Navy Federal enters into mortgage loan commitments, also called interest rate lock commitments (IRLCs), in connection with its mortgage banking activities to fund residential mortgage loans at specified times...

  • Page 29
    ...Dividend rates on members' accounts are set by Navy Federal's Board of Directors, and dividends are charged to expense. Dividends on all share products are paid monthly. Reclassifications Certain amounts in the prior year's financial statements have been reclassified to conform to the current year...

  • Page 30
    ... types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. This ASU is not expected to significantly impact Navy Federal's consolidated financial statements. In August 2014, the FASB issued ASU 2014-14, Receivables-Troubled Debt Restructurings...

  • Page 31
    ... 3: INVESTMENTS Navy Federal's HTM and AFS securities as of December 31, 2014 and 2013 were as follows: (dollars in thousands) December 31, 2014 Held-to-maturity U.S. government and federal agency securities Residential mortgage-backed securities WeightedAverage Yield 1.65% 0.57% $ Amortized Cost...

  • Page 32
    ...Home Loan Bank (FHLB) of San Francisco and the FHLB of Atlanta as of December 31, 2014 and 2013. FHLB stock is a restricted investment carried at cost and evaluated for impairment. As a member of the FHLB system, Navy Federal has access to a $14.0 billion line of credit facility. All debt securities...

  • Page 33
    ... REVIEW (dollars in thousands) Less than 12 months Fair Value Gross Unrealized (Losses) 12 months or longer Fair Value Gross Unrealized (Losses) Fair Value Total Gross Unrealized (Losses) December 31, 2014 Held-to-maturity securities U.S. government and federal agency securities $ - $ - $ 100...

  • Page 34
    ...534 $ 2013 8,395,078 13,006 3,002,840 312,569 356,545 8,127,484 - Consumer loans Auto Unamortized cost Other(1) Checking lines of credit (CLOC) Federal education loans Credit card loans Unamortized cost Mortgage loans Mortgage Loan Investments (MLI) Fixed rate Variable rate In process Unamortized...

  • Page 35
    ...loan product type: consumer loans, credit card loans, mortgage loans and equity loans. Navy Federal uses collateral type and FICO score as the primary credit quality indicators for its consumer loans, which consisted of the following as of December 31, 2014 and 2013: As of December 31, 2014 (dollars...

  • Page 36
    ... of $(2.6) million. Navy Federal uses estimated current LTV (loan-to-value) ratios and FICO score as the primary credit quality indicators for its mortgage loans, which consisted of the following as of December 31, 2014 and 2013: As of December 31, 2014 (dollars in thousands) FICO Score Less than...

  • Page 37
    ... loans in process of $1.4 million. Changes in the allowance for loan losses during the years ended December 31, 2014 and 2013 were as follows: As of December 31, 2014 (dollars in thousands) Consumer Credit Cards Real Estate Other Total Allowance for credit losses: Balance, beginning of year...

  • Page 38
    ... respectively. The UPB of loans on non-accrual status by portfolio type as of December 31, 2014 and 2013 were as follows: (dollars in thousands) 2014 $ 92,977 76,919 134,622 $ 2013 73,287 57,707 157,656 Consumer Credit Card Real estate Total $ 304,518 $ 288,650 20 Navy Federal Credit Union

  • Page 39
    ...of December 31, 2014 and 2013, respectively. Navy Federal recognizes servicing advances that are reimbursable as Accounts receivable on its Consolidated Statements of Financial Condition. Servicing advances as of December 31, 2014 and 2013 were as follows: (dollars in thousands) 2014 $ 15,666 1,461...

  • Page 40
    ...Troubled Debt Restructurings During the Year Ended December 31, 2014(1) Interest Rate Reduction & Term Extension $ 3,687 - 4,712 $ Interest Rate Reduction 7,637 28,484 269 Term Extension $ 5,556 - 1,859 $ Other(2) (dollars in thousands) Consumer Credit card Real estate 2,504 1,625 6,856 Total...

  • Page 41
    ...A YEAR IN REVIEW For the year ended December 31, 2014, TDRs that were more than 60 days delinquent within the first 12 months after modification totaled $5.8 million, which included $3.6 million of consumer loans, $1.1 million of credit card loans and $1.1 million of real estate loans. For the year...

  • Page 42
    ... to service those loans. Navy Federal recognizes MSRs at fair value with changes in fair value recognized in Fair value adjustment of mortgage servicing rights on the Consolidated Statements of Income. MSR valuation is sensitive to interest rate and prepayment risk. 24 Navy Federal Credit Union

  • Page 43
    ... by Navy Federal for outside investors was $20.0 billion and $19.3 billion, respectively. Navy Federal's servicing fees are priced based on minimum rates required by Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and the Government National Financial...

  • Page 44
    ... years (2) CPR is based on the average of the CPR for all GNMA securities. GNMA securities are collateralized by government-insured loans and there is no anticipation of significant credit losses. (2) GNMA Mortgages (dollars in thousands) 2014 2013 Constant prepayment rate Adverse fair value...

  • Page 45
    ... of Financial Condition. On the Consolidated Statements of Income, the related provision expense is included as an offset to Net gains on mortgage loan sales for new loans sold during the period, or in Loan servicing expenses for re-measurement of the liability on loans sold in prior periods. Navy...

  • Page 46
    ...-sharing agreement, whereby Navy Federal agreed to indemnify FNMA for loans having high LTV ratios. The following table summarizes proceeds received for sales of loans and payments made for losses under this agreement during the years ended December 31, 2014 and 2013: FNMA Outstanding UPB of Loans...

  • Page 47
    2014 | A YEAR IN REVIEW scores, loan-to-value ratios and debt-to-income ratios than required by the agreement at the time of origination. In 2009, NCUA placed U.S. Central Credit Union into conservatorship. NCUA's Office of Asset Management and Assistance Center assumed the management of U.S. ...

  • Page 48
    ...open IRLCs. Navy Federal had $572.4 million and $507.9 million as of December 31, 2014 and 2013, respectively, of mortgage loans classified as MLAS on the Consolidated Statements of Financial Condition to meet these commitments. Derivatives Accounted For as Economic Hedges Navy Federal is an active...

  • Page 49
    ... ineffectiveness of FV hedges for the years ended December 31, 2014 and 2013, respectively. Cash Flow Accounting Hedges Navy Federal funds a portion of its investments and overall operations with variable rate obligations. Navy Federal uses pay-fixed interest rate swaps to hedge the variability in...

  • Page 50
    ...to the master netting agreement has the right to offset what is owed to them by closing out, liquidating or netting any or all open positions, including collateral. Navy Federal presents its derivative assets and liabilities on a gross basis in its Consolidated Statements of Financial Condition. The...

  • Page 51
    ...558 - $ (69) - $ (1,492) 5,593 997 Total Financial Liabilities Interest Rate Lock Commitments Forward Sales Contracts Interest Rate Contracts FV Interest Rate Contracts CF Interest Rate Contracts Total Derivatives Securities sold under repurchase agreements $ 32,505 $ - $ 32,505 $ (69) $ (18...

  • Page 52
    ...331,716 1,706 8,915 Credit cards Home equity lines of credit Checking lines of credit Pre-approved auto loans Utility deposit guarantee programs Other (1) Total (1) $ 13,897,132 $ 13,188,338 Includes Stand By Letters of Credit and Business Lines of Credit. Navy Federal had an allowance of $16...

  • Page 53
    ...the years ended December 31, 2014 and 2013, respectively. NOTE 14: GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill Navy Federal recognizes net assets acquired and liabilities assumed of acquired entities at estimated fair value as of the acquisition date, subject to refinement as information relative...

  • Page 54
    ...related to money market accounts. Core deposit balances represent a favorable source of financing 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...

  • Page 55
    ...57% 0.08% 0.00% $ 2014 Balance (dollars in thousands) WeightedAverage Dividend Rate for 2013 2.10% 0.25% 0.54% 0.16% 0.25% 0.53% 0.07% 0.00% $ 2013 Balance Share and IRA certificates Savings Money market Checking IRA shares IRA money market Member escrow Investor custodial accounts 14,967,283...

  • Page 56
    ...market and IRA money market Checking IRA shares Total dividends $ 351,756 $ 370,664 NOTE 16: BORROWED FUNDS Navy Federal's short-term and long-term borrowings at December 31, 2014 and 2013 were as follows: As of December 31, 2014 Maturity (dollars in thousands) Fixed or Floating Interest Rate...

  • Page 57
    ... 31, 2013 Maturity (dollars in thousands) Fixed or Floating Interest Rate Fixed Floating Fixed Fixed Interest Payment Amount Outstanding WeightedAverage Rate Coupon Short term 2014 Other FHLB short-term borrowings 2014 2014 FHLB long-term borrowings maturing in next 12 months Securities sold...

  • Page 58
    ... lines of credit as of December 31: 2014 $ 5,166,028 4,089,873 272,500 $ (dollars in thousands) 2013 4,730,406 2,982,409 252,500 Federal Reserve FHLB Fed Funds Total $ 9,528,401 $ 7,965,315 NOTE 17: RETIREMENT BENEFIT PLANS Navy Federal Credit Union Employees' Retirement Plan Navy Federal...

  • Page 59
    ... average rate to be earned on plan assets and future plan contributions to provide for the benefits included in the benefit obligations. The assumption is based on several factors including the anticipated long-term asset allocation of plan assets, historical market index and plan returns and...

  • Page 60
    ... retiree medical benefit plan for 2014 and 2013 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 return of plan assets at...

  • Page 61
    ... market. The fixed income allocation is comprised of a small allocation to cash to provide liquidity for benefit and expense payments, with the balance invested in intermediate- and long-term bonds, the majority of which are investment grade. The fair values of the Navy Federal Employees' Retirement...

  • Page 62
    ... 2014 and 2013, 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 up to the statutory limits to a 401(k) retirement account and receive employer...

  • Page 63
    ...the years ended December 31, 2014 and 2013, respectively. NOTE 18: RELATED PARTY TRANSACTIONS In the normal course of business, Navy Federal extends loans to credit union officials. Credit union officials are defined as volunteer members of the Board of Directors and board committees, and employees...

  • Page 64
    ...complex" if the credit union's quarter-end total assets exceed ten million dollars ($10,000,000) and its RBNW requirement exceeds 6%. Navy Federal's RBNW requirement as of December 31, 2014 was 5.93%. Navy Federal's RBNW requirement as of December 31, 2013 was 6.19%, which placed Navy Federal in the...

  • Page 65
    ... 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 its assets measured at fair value: Securities Available-for-Sale (AFS) Navy Federal receives pricing for AFS...

  • Page 66
    ...31, 2014 Quoted Prices in Active Markets for Identical Assets (Level 1) $ - $ (dollars in thousands) Significant Observable Inputs (Level 2) 5,204,237 $ Significant Unobservable Inputs (Level 3) - $ Balance as of December 31, 2014 Available-for-sale U.S. government and federal agency securities...

  • Page 67
    ...31, 2013 Quoted Prices in Active Markets for Identical Assets (Level 1) $ - $ (dollars in thousands) Significant Observable Inputs (Level 2) 5,069,920 $ Significant Unobservable Inputs (Level 3) - $ Balance as of December 31, 2013 Available-for-sale U.S. government and federal agency securities...

  • Page 68
    ... 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 which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. 50 Navy Federal Credit Union

  • Page 69
    ...estimated using quoted market prices for similar securities. Cash The reported carrying amount of Cash approximates fair value for vault cash and demand balances from other financial institutions. Members' Accounts The fair value of Savings, Money Market Savings, Checking and IRA share accounts is...

  • Page 70
    ... at December 31, 2014 and 2013 were: 2014 (dollars in thousands) 2014 Fair Value 2013 Carrying Amount 2013 Fair Value Carrying Amount Financial assets: Cash Short-term investments Securities available-for-sale Securities held-to-maturity Mortgage loans awaiting sale Loans to members, net of...

  • Page 71
    Your savings federally insured to $250,000 National Credit Union Administration, a U.S. Government Agency Federally insured by NCUA. © 2015 Navy Federal NFCU 8010-F (4-15)

  • Page 72
    2014 A YEAR IN REVIEW PO Box 3000, Merrifield, VA 22119-3000 • navyfederal.org © 2015 Navy Federal NFCU 8010 (4-15) 2014 ANNUAL REPORT