Navy Federal Credit Union 2006 Annual Report Download - page 23

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Members’ Accounts
Members’ accounts are classified as equity to denote the
ownership interest of the members in Navy Federal. e
American Institute of Certified Public Accountants opined
that credit union savings accounts should be classified as
liabilities consistent with the prevailing practice in mutually
owned savings and loan associations and banks. Navy
Federal does not agree with this opinion and believes
that the AICPA did not consider that credit unions are
fundamentally dissimilar to such institutions, which (for
example) accept deposits from the general public and are
not democratically controlled by their “owners.”
Pension Accounting and Retirement Benefit Plans
Navy Federal has defined benefit pension plans, 401(k)
and 457(b) savings plans and a non-qualified supplemental
retirement plan. Navy Federal also provides a contributory
group medical plan for retired employees. Navy Federal
accounts for its defined benefit pension plans in accordance
with SFAS No. 87, Employers’ Accounting for Pensions.
Non-pension postretirement benefits are accounted for in
accordance with SFAS No. 106, Employers’ Accounting for
Postretirement Benefits Other an Pensions. In 2004, Navy
Federal adopted SFAS 132, Employers’ Disclosures about
Pensions and Other Postretirement Benefits. See Note 12
for details.
Income Taxes
Pursuant to the Federal Credit Union Act, Navy Federal
is exempt from the payment of Federal and state income
taxes. NFFG is a limited liability corporation and did
not incur Federal or state income tax liability.
Dividends
Dividend rates on members’ accounts are set by the Board
of Directors and dividends are charged to operations.
Dividends on all share products are paid monthly.
Reclassifications
Certain amounts in the prior year have been reclassified to
conform to current year presentation.
N : R  C
Navy Federal is required to maintain balances with
corporate credit unions that are classified as membership
shares that are uninsured and require a three-year notice
before withdrawal. e required balance for Navy Federal
at December 31, 2006 and 2005 was $22.7 million and
$18.8 million, respectively.
e Board of Governors of the Federal Reserve System
(FRB) requires Navy Federal to maintain a cash reserve
balance to cover transactions processed by the FRB for
Navy Federal. At December 31, 2006 and 2005, Navy
Federal’s clearing balance requirement was $50 million
and $60 million, respectively.
In February 2004, Navy Federal Financial Group set aside
$1 million as non-current restricted cash as part of the
agreement it entered into with Charlie Mac, LLC. NFFG
continued to set $1 million aside as non-current restricted
cash in 2006 and 2005.
N : I
A summary of held-to-maturity and available-for-sale securities is as follows (dollars in thousands):
At December 31, 2006 and 2005, respectively, Navy Federal’s securities, excluding $269 million and $327 million in mortgage-backed securities
and $305 million and $88 million in other securities, were predominantly short-term in nature; $3.49 billion and $3.96 billion maturing within
one year, and $735 million and $1.93 billion maturing from one through three years.
Navy Federal held $76.1 million and $26.5 million of Federal Home Loan Bank of Atlanta (FHLBA) stock as of December 31, 2006 and 2005. 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 $2.9 billion line of
credit facility. e FHLBA stock paid a 5.90% and 4.60% dividend in the 4th quarter of 2006 and 2005, respectively.
All debt securities were reviewed individually to determine whether the unrealized losses associated with them were caused by a decline other-than-
temporary in the value of such investments. At December 31, 2006 and 2005, there was no decline considered "other-than-temporary" in the value
of U.S. Government and federal agency securities owned by Navy Federal.
Other investments represent capital required to maintain partnerships with credit union organizations.
Investments pledged as collateral for borrowed funds were $1.85 billion and $2.69 billion at December 31, 2006 and 2005, respectively.
December 31, 2005
Weighted
Average
Yield Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses) Estimated Fair Value
Held-to-maturity
U.S. Government and federal agency securities 3.17% $ 2,548,583 $–$ (42,250) $ 2,506,333
Mortgage-backed securities 4.75% 326,845 960 (657) 327,148
Total held-to-maturity 2,875,428 960 (42,907) 2,833,481
Available-for-sale
Auction Rate Securities 4.36% 5,000 – – 5,000
Mutual Funds 3.62% 3,000 –(109) 2,891
Total available-for-sale 8,000 – (109) 7,891
Total securities $ 2,883,428 $ 960 $ (43,016) $ 2,841,372
December 31, 2006
Weighted
Average
Yield Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses) Estimated Fair Value
Held-to-maturity
U.S. Government and federal agency securities 3.43% $ 1,648,340 $ 13 $ (18,915) $ 1,629,438
Mortgage-backed securities 5.80% 268,560 960 (783) 268,737
Total held-to-maturity 1,916,900 973 (19,698) 1,898,175
Available-for-sale
Mutual funds 4.78% 3,000 –(103) 2,897
Total available-for-sale 3,000 – (103) 2,897
Total securities $ 1,919,900 $ 973 $ (19,801) $ 1,901,072