Navy Federal Credit Union 2011 Annual Report Download - page 35

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2011 FINANCIAL SECTION 19
For the year ended December 31, 2011, Navy Federal recognized $3.5 million of interest on acquired credit-impaired loans. e average balance
of acquired credit-impaired loans was $55.6 million.
Decreases in the expected cash ows to be received on these loans resulted in an increase in allowance for loan losses in the amount of $6.1 million
and $0.3 million as of December 31, 2011 and 2010, respectively. During 2011, previously established allowances were reduced by $5.0 million
for loans where the cash ows were signicantly greater than previously expected or it is probable that there is a signicant increase in expected
cash ows.
e following table displays accretable yield activity of these loans for the years ended December 31:
(dollars in thousands) 2011 2010
Balance, beginning of period $ 38,328 $ —
Additions—Acquisition October 1, 2010 — 40,414
Accretion (4,889) (1,196)
Net reclassications1(1,446) (333)
Removals (3,223) (557)
Balance, end of period $ 28,770 $ 38,328
1Includes transfers between accretable and non-accretable as well as Navy Federal and USAFCU loan IDs.
Note 8: Mortgage Servicing Rights
Navy Federal capitalizes Mortgage 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 and prepayment risk.
e changes in fair value of MSRs during 2011 and 2010 were as follows:
(dollars in thousands) 2011 2010
Balance, beginning of period $ 161,150 168,699
Originations 32,476 31,554
(Loss) on changes in value of MSRs (51,258) (39,103)
Balance, end of period $ 142,368 $ 161,150