Navy Federal Credit Union 2007 Annual Report Download - page 34

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12 Navy Federal
investors. These forward sales commitments act as an economic hedge against
the risk of changes in the value of both the mortgage loan commitments and
mortgage loans held for sale. As required by SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, Navy Federal accounts for both
the mortgage loan commitments and the forward sales contracts as derivative
instruments on its Consolidated Statements of Financial Condition at fair
value with changes in fair value included in current earnings. These derivative
instruments are economic hedges to which Navy Federal does not receive
hedge accounting treatment.
The notional value of the mortgage loan commitments totaled $43.8 million and $104 million,
respectively, as of December 31, 2007 and 2006. A gross gain and gross loss on these derivatives
at December 31, 2007 and 2006 were reported as follows (dollars in thousands at year end):
Mortgage Loan Commitments 2007 2006
Gain $ 202 $ 125
Loss (119) (1,018)
Net $ (83) $ (893)
Forward Sales Contracts 2007 2006
Gain $ 90 $ 633
Loss (547) (34)
Net $ (457) $ 599
The notional value of the forward sales contracts was $110 million and $143 million, respectively, as
of December 31, 2007 and 2006. A gross gain and gross loss on these derivatives at December 31,
2007 and 2006 were reported as follows (dollars in thousands at year end):
Navy Federal recognized the net loss of $79,000 and the net gain of $2.54
million in the fair value of these derivative instruments during 2007 and 2006,
respectively, and included it in earnings as “Unrealized loss from derivative and
economic hedging activities” in the Consolidated Statements of Operations.
Note 7: Legal Contingencies
Navy Federal is a party to various legal actions normally associated with
financial institutions, the aggregate effect of which, in management’s and legal
counsel’s opinion, would not be material to the financial condition or results
of operations of Navy Federal.
Note 8: Commitments
Navy Federal is a party to conditional commitments to lend funds in the
normal course of business to meet the financing needs of its members. Unused
commitments for loans to members are amounts which Navy Federal has agreed
to lend a member as long as the member does not default on existing loans or
violate any condition of the loan agreement. Commitments generally have fixed
expiration dates or other termination clauses. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. Navy Federal
uses the same credit policies in making commitments as it does for all loans to
members and, accordingly, at December 31, 2007, the credit risk related to
these commitments was similar to that on its existing loans.