Navy Federal Credit Union 2015 Annual Report Download - page 70

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Financial Section 51
2015—SHARED SUCCESS
The following tables summarize the changes in fair value for items measured at Level 3 fair value
on a recurring basis using significant unobservable inputs at December 31:
Reconciliation of Level 3 Assets and Liabilities
as of December 31, 2015
(dollars in thousands)
Mortgage
Servicing Rights
Interest Rate Lock
Commitments—
Asset
Interest Rate Lock
Commitments—
Liability
Balance, beginning of year $ 235,801 $ 8,771 $ 3
Realized/Unrealized gain (loss)
included in earnings 4,059 19,515 37
Issuances/purchases 63,099 167,791 25
Settlements/sales (32,083) (177,507) (46)
Balance, end of year $ 270,876 $ 18,570 $ 19
Net unrealized gains (losses) related to assets
still held at December 31, 2015 $ (28,024) $ 18,570 $ 19
Reconciliation of Level 3 Assets and Liabilities
as of December 31, 2014
(dollars in thousands)
Mortgage
Servicing Rights
Interest Rate Lock
Commitments—
Asset
Interest Rate Lock
Commitments—
Liability
Balance, beginning of year $ 236,579 $ 5,593 $ 45
Realized/Unrealized gain (loss)
included in earnings (10,377) 15,243 (8)
Issuances/purchases 34,063 83,368 53
Settlements/sales (24,464) (95,433) (87)
Balance, end of year $ 235,801 $ 8,771 $ 3
Net unrealized gains (losses) related to assets
still held at December 31, 2014 $ (34,841) $ 8,771 $ 3
Financial Assets Accounted For at Fair Value on a Non-recurring Basis
Certain assets and liabilities may be required to be measured at fair value on a non-recurring
basis. These non-recurring fair value measurements usually result from the application of the
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 on a non-recurring basis:
Real Estate Owned
REO is recorded at the lower of cost or fair value less costs to sell. Navy Federal utilizes Broker
Price Opinions (BPOs) or home appraisals to estimate the fair market value of REO. A BPO
considers the value of similar surrounding properties, sales trends in the neighborhood and/or an
estimate of any of the costs associated with getting the property ready for sale. A home appraisal
involves a certified, state-licensed professional to determine the value of property by doing an
interior and exterior inspection of the subject property and a comparison to comparable home
sales. Fair value less costs to sell is an estimated value based on relevant recent historical data
that are considered unobservable inputs, and as such, REO is classified as Level 3 in the fair value
hierarchy and valued on a non-recurring basis.