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Navy Federal Credit Union • 2013 Financial Section
32
2013 ANNUAL REPORT
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 cash flows related to existing
and anticipated replacement funding that reprices based on LIBOR. For derivative instruments that are
designated and qualify as cash flow hedges under ASC 815, the eective portion of the hedge on the
derivative instrument is reported as a component of other comprehensive income and reclassified into
earnings in the same period or periods that the hedged transaction aects earnings. The ineective
portion is recognized in current earnings on the Consolidated Statements of Income.
During the next 12 months, net losses in AOCI of approximately $17.2 million on derivative instruments
that qualify as cash flow hedges are expected to be reclassified into earnings. The table below
summarizes gains and losses recognized in earnings related to Navy Federal’s derivatives designated as
cash flow hedges during the years ended December 31, 2013 and 2012.
For open or future cash flow hedges, the maximum length of time over which forecasted transactions are
or will be hedged is approximately 10 years.
(dollars in thousands)

in Other Comprehensive
Income
(Loss) Reclassified from
Other Comprehensive
Income to Income

Income (ineective
portion)
     
Interest rate contracts $ 18,627 $ (5,638) $ (9,190) $ (1,472) $ 4 $ —
Navy Federal clears its fair value and cash flow hedge interest rate swap trades through a CCP, which
requires the initial and ongoing posting of margin collateral. Additional collateral is required for trades
either in a net loss or net gain position. These margin requirements significantly reduce Navy Federal’s
exposure to counterparty risk. As of December 31, 2013 and 2012, Navy Federal had margin collateral with
brokers in the amount of $18.5 million and $5.2 million, respectively.
NOTE 11:
Navy Federal has entered into legally enforceable master netting agreements with various counterparties
that govern the purchase, sale, execution, clearing, and carrying of its derivatives and repurchase
agreements. These agreements, in addition to separate margining provisions that require collateral to
be exchanged based on the direction and level of interest rates, reduce Navy Federal’s exposure to
counterparty risk. Under the master netting agreements, each of the counterparties and Navy Federal
agree to perform all of their obligations with respect to all transactions, and agree that upon failure to
perform any of those obligations, all obligations under all transactions become due and payable. Each
party to the master netting agreement has the right to oset what is owed to them by closing out,
liquidating, or netting any or all open positions, including collateral.
Navy Federal meets all of the conditions for osetting related asset and liability amounts for its derivative
contracts and repurchase agreements in accordance with ASC 210-20, Balance Sheet—Osetting.
However, due to the immaterial amounts concerned, Navy Federal has not elected to present its
derivative assets and liabilities on a net basis on its Consolidated Statements of Financial Condition.
The following tables disclose the amounts eligible for oset on Navy Federal’s Statements of Financial
Condition as of December 31, 2013 and 2012: