Navy Federal Credit Union 2008 Annual Report Download - page 10

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2008 FINANCIAL SECTIONNAVY FEDERAL CREDIT UNION
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Note 3: Restrictions on Cash
Navy Federal is required to maintain balances with corporate credit unions that are classified as membership
shares. These shares are not insured by the National Credit Union Share Insurance Fund (NCUSIF) and require a
three-year notice before withdrawal. The required balance for Navy Federal at December 31, 2008 and 2007
was $28.3 million and $50.9 million, respectively.
The 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, 2008 and 2007,
Navy Federal's clearing balance requirement was $100.0 million and $50.0 million, respectively.
In 2008 and 2007, NFFG has set aside $1.0 million as non-current restricted cash as part of the agreement
it entered into with Charlie Mac, LLC.
Note 4: Investments
A summary of held-to-maturity and available-for-sale securities is as follows:
Property Leases
SFAS No. 13 requires a company to account for operating leases using the straight-line method by dividing
the total contractual rent due by the total lease term. Navy Federal has been accounting for its property leases
by recording annual rent payments rather than amortizing the contractual expense over the life of the lease.
The table below shows the impact of the restatement adjustments to the Consolidated Statement of Financial
Condition, the Consolidated Statement of Income and the Consolidated Statement of Cash Flows:
(dollars in thousands)
Consolidated Statement of Financial Condition 2007-reported Total adjustments 2007-restated
Assets
Loans to members, net $ 26,231,035 $ 1,692,930 $ 27,923,965
Mortgage Servicing Rights 191,806 (22,500) 169,306
Total Assets 33,011,920 1,670,430 34,682,350
Liabilities
Notes payable 4,498,258 1,629,577 6,127,835
Accrued expenses and accounts payable 160,609 1,412 162,021
Member’s Equity
Capital Reserves 2,971,713 39,441 3,011,154
Total liabilities and member’s equity $ 33,011,920 $ 1,670,430 $ 34,682,350
Consolidated Statement of Cash Flows 2007-reported Total adjustments 2007-restated
Cash flows from operating activities:
Net income $ 236,206 $ (6,150) $ 230,056
Amortization of loan origination fees — 22,914 22,914
Mortgage loan sales proceeds 1,559,928 (464,250) 1,095,678
Decrease in mortgage servicing rights 6,901 5,317 12,218
Increase in accrued expenses and accounts payable 66,097 1,412 67,509
Net cash provided by operating activities 576,360 (440,757) 135,603
Cash flows from investing activities:
Net increase in loans to members (6,056,280) (19,477) (6,075,757)
Cash flows from financing activities:
Net increase in notes payable $ 3,480,190 $ 460,234 $ 3,940,424
Consolidated Statement of Income 2007-reported Total adjustments 2007-restated
Total interest income $ 1,882,308 $ 67,227 $ 1,949,535
Gain/(Loss) on mortgage loan sales, net 10,554 777 11,331
Mortgage Servicing Fees 51,293 (3,823) 47,470
Other 65,234 (29,605) 35,629
Total non-interest income 490,977 (32,651) 458,326
Interest on securities sold under repurchase
agreements and notes payable 193,621 91,135 284,756
Total dividend and interest expense 976,515 91,135 1,067,650
Office occupancy expense 47,546 1,412 48,958
FMV Adjustment of Mortgage Servicing Rights 28,252 (2,517) 25,735
Miscellaneous operating expense 39,874 (49,304) (9,430)
Total non-interest expense 876,662 (50,409) 826,253
Net income $ 236,206 $ (6,150) $ 230,056
At December 31, 2008, Navy Federal’s securities, excluding $2.5 billion in mortgage-backed securities, were
predominantly long-term in nature; $18.0 million maturing within one year, $38.9 million maturing from one
through three years, and $739.5 million maturing beyond three years. At December 31, 2007, Navy Federal's
securities, excluding $910.3 million in mortgage-backed securities and $418.7 million in other securities, were
predominantly short-term in nature; $3.2 billion maturing within one year, and $100.1 million maturing from one
through three years.
December 31, 2007
Weighted
Average
Yield
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Estimated
Fair Value
Held-to-maturity
U.S. Government and federal
agency securities 4.06% $ 592,296 $ 212 $ (655) $ 591,853
Mortgage-backed securities 5.44% 229,302 647 (1,129) 228,820
Total held-to-maturity 821,598 859 (1,784) 820,673
Available-for-sale
CMO floaters 5.58% 680,975 235 (3,222) 677,988
Mutual Funds 4.46% 3,000 — (90) 2,910
Total available-for-sale 683,975 235 (3,312) 680,898
Total securities $ 1,505,573 $ 1,094 $ (5,096) $ 1,501,571
(dollars in thousands)
December 31, 2008
Weighted
Average
Yield
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Estimated
Fair Value
Held-to-maturity
U.S. Government and federal
agency securities 4.41% $ 25,219 $ 275 $—$ 25,494
Mortgage-backed securities 1.44% 199,960 — (6,300) 193,660
Total held-to-maturity 225,179 275 (6,300) 219,154
Available-for-sale
Mortgage-backed securities 2.40% 2,323,169 15,632 (81,156) 2,257,645
Federal agency securities 3.45% 359,701 13,910 — 373,611
Total available-for-sale 2,682,870 29,542 (81,156) 2,631,256
Total securities $ 2,908,049 $ 29,817 $ (87,456) $ 2,850,410