Navy Federal Credit Union 2008 Annual Report Download - page 18

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2008 FINANCIAL SECTION
The tables below show the key assumptions used and the effect of a ten percent (10%) and twenty percent
(20%) adverse change to the constant prepayment rate (CPR) and discount factor. The adverse change reflects
the potential impact to the fair value of the securitizations if these changes occurred. However, the sensitivities
in the table below are hypothetical and may not be indicative of actual results. The effect of a variation in a
particular assumption on the fair value is calculated independently of changes in other assumptions. Further,
changes in fair value based on variations in assumptions generally cannot be extrapolated because the
relationship of the change in assumption on the fair value may not be linear.
(1) CPR is based on the average of the CPR for all of the GNMA securities.
(2) Ginnie Mae securities are explicitly backed by the federal government, therefore there are no anticipated credit losses.
Note 19: Borrowed Funds
The following table displays Navy Federal’s short-term and long-term borrowings as of December 31, 2008:
The following table displays the
amount of long-term maturities
for each of the next five years
as of December 31, 2008:
NAVY FEDERAL CREDIT UNION
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Note 20: Recently Issued
Accounting Standards
Not Yet Adopted
In February 2008, the FASB issued FASB Staff Position
(FSP) No. 157-2, Effective Date of FASB Statement
No. 157. FSP 157-2 delays the effective date of SFAS
No. 157, Fair Value Measurements, for non-financial
assets and liabilities. Navy Federal elected to defer
the application of SFAS No. 157 to certain non-
financial assets and liabilities, which are not measured
at fair value on a recurring basis, until January 1,
2009. Navy Federal is currently evaluating the impact
adoption may have on its financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 permits entities to
choose to measure many financial instruments and
certain other items at fair value. The objective of
this statement is to improve financial reporting by
providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring
related assets and liabilities differently without having
to apply complex hedge accounting provisions.
This statement is effective for fiscal years beginning
November 15, 2007. Early adoption is permitted.
Navy Federal is currently evaluating the impact
adoption may have on its financial statements.
In December 2007, the FASB issued SFAS
No. 141(R), Business Combinations. This statement
requires greater use of fair values in financial report-
ing and increases transparency through expanded
disclosures. SFAS No. 141(R) changes how business
acquisitions are accounted for and impacts financial
statements at the acquisition date and in subsequent
periods. Additionally, SFAS No. 141(R) affects the
goodwill impairment assessment testing that is
associated with acquisitions that closed before and
after the effective date of the statement. SFAS No.
141(R) is effective for fiscal years beginning on or
after December 15, 2008. Earlier application is
prohibited. Navy Federal is currently evaluating
the impact adoption may have on its financial
condition, results of operations and cash flows.
In December 2007, the FASB issued SFAS No.
160, Non-Controlling Interests in Consolidated
Financial Statements. The objective of this statement
is to improve the relevance, comparability, and trans-
parency of the financial information that a reporting
entity provides in its consolidated financial state-
ments. SFAS No. 160 will introduce significant
changes in the accounting and reporting for non-
controlling interest in a subsidiary. This statement
will also affect the accounting for and reporting for
the deconsolidation of a subsidiary. SFAS No. 160
is effective for fiscal years beginning on or after
December 15, 2008. Early adoption is prohibited.
Navy Federal is currently evaluating the effect
adoption may have on its financial statements.
Note 21: Subsequent Events
On January 29, 2009, the National Credit Union
Administration (NCUA) issued Letter No.: 09-CU-02
entitled Corporate Credit Union System Strategy (the
Letter). The purpose of the Letter was to inform the
credit union industry of liquidity and capital issues
within the corporate credit union system. To enhance
liquidity and improve the capital position of the cor-
porate credit unions, NCUA provided for a $1.0 billion
capital infusion to U.S. Central Federal Credit Union
(U.S. Central) from the National Credit Union Share
Insurance Fund (NCUSIF). NCUA also proposed in
the Letter that all deposits in corporate credit unions
be fully insured through a guarantee backed by the
NCUSIF. NCUA estimated the impact to the NCUSIF
of a guarantee would be $3.7 billion, but requested
an independent study to assess the estimated losses.
On March 20, 2009, the NCUA issued Letter
No.: 09-CU-06 entitled Corporate Stabilization
Program—Conservatorship of U.S. Central FCU and
Western Corporate FCU. This letter noted that the
NCUA had placed U.S. Central and Western Corpo-
rate into conservatorship and revised its estimate
of the NCUSIF guarantee from $3.7 billion to $4.9
billion. This letter also stated that the NCUA is con-
sidering other alternatives that would not require
the use of the NCUSIF fund.
These actions are treated as Type 2 subsequent
events, and accordingly, no adjustment has been
made in these financial statements. As of December
31, 2008, Navy Federal has an asset of $205.0
million related to its NCUSIF deposit and has invest-
ments in Western Corporate of $10.1 million.
2008
Discount factor 0.45–1.00
Constant prepayment rate(1) 14.43%
Anticipated credit losses(2) 0
Weighted average life 5.11 years
(dollars in thousands) 2008
Discount factor
Adverse change of 10% $ (31,996)
Adverse change of 20% (63,992)
Constant prepayment rate
Adverse change of 10% $ (2,805)
Adverse change of 20% (5,356)
(dollars in thousands) Maturities Outstanding
Weighted
Average Rate
Short term
FHLB Short-Term Borrowings 2009 $ 358,622 0.46%
FHLB Borrowings for purpose of positive arbitrage 2009 647,000 0.65%
Total short-term borrowings $ 1,005,622
Long term
FHLB Match-Funding Borrowings 2009–2018 $ 5,086,400 4.63%
FHLB Other Long-Term Borrowings 2009–2021 1,717,650 3.28%
Securities sold under agreements to repurchase 2010 311,500 3.13%
Total long-term borrowings $ 7,115,550
Total borrowed funds $ 8,121,172
(dollars in thousands) Amount
2009 $ 1,390,900
2010 999,500
2011 317,000
2012 213,500
Thereafter 4,194,650
Total $ 7,115,550