Navy Federal Credit Union 2009 Annual Report Download - page 24

The table below presents the balance sheet items measured at fair value on a non-recurring basis when
certain assets are measured at the lower of cost or market (LOCOM) that were recognized at fair value below
cost at the end of the period.
Note 16: Fair Values of Financial Instruments
ASC 825-10, Disclosures about Fair Value of Financial Instruments (formerly known as SFAS No. 107), requires
the disclosure of the estimated fair value of the financial instruments, including those financial instruments
Navy Federal did not elect to fair value. The financial instruments that are accounted for under ASC 820-10
(formerly known as SFAS No. 157) are disclosed separately in Note 15. Navy Federal discloses fair value
information for its financial instruments, whether the fair value is recognized in the Consolidated Statements
of Financial Condition or not, for which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows. In that regard, the derived fair value cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the instrument. Certain financial
instruments and all non-financial instruments are excluded from disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not necessarily represent the underlying fair value of Navy Federal.
The following methods and assumptions were used in estimating the fair value disclosures for financial instruments:
Loans to Members
For certain residential mortgages, fair value is estimated using the quoted market prices for securities backed
by similar loans. The fair value of other types of loans, such as consumer and equity loans, is estimated by
discounting the future cash flows using the current market rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Investments, including Mortgage-Backed Securities
Fair value is based on a quoted market price, if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities. For resale and repurchase agreements, due to their
short-term nature, the carrying amount is a reasonable estimate of fair value.
25
2009 Financial Section
The following table summarizes the changes in fair value for items measured at fair value (Level 3) on a
recurring basis using significant unobservable inputs:
Navy Federal Credit Union
24
Fair Value at December 31, 2009
(dollars in thousands) Mortgage servicing assets
Balance, beginning of year $ 131,194
Net gains/(losses) included in earnings (14,540)
Purchases, issuances and settlements 52,045
Balance, end of year $ 168,699
Change in unrealized gains/(losses) related to
financial instruments still held at December 31, 2009 $ 17,545
Fair Value at December 31, 2008
(dollars in thousands) Mortgage servicing assets
Balance, beginning of year $ 169,306
Net gains/(losses) included in earnings (66,323)
Purchases, issuances and settlements 28,211
Balance, end of year $ 131,194
Change in unrealized gains/(losses) related to
financial instruments still held at December 31, 2008 $ (53,094)
Fair Value at
December 31, 2008
(dollars in thousands)
Quoted prices
in Active Markets
for Identical Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance
as of
December 31,
2008
Securities available-for-sale $—$ 2,631,256 $—$ 2,631,256
Mortgage servicing rights — — 131,194 131,194
Other assets—Derivative
commitments — 5,380 — 5,380
Total assets at fair value
on a recurring basis —2,636,636 131,194 2,767,830
Other liabilities—Derivative
commitments — 445 — 445
Total liabilities at fair value
on a recurring basis $—$ 445 $—$ 445
Fair Value at
December 31, 2009
(dollars in thousands)
Quoted prices
in Active Markets
for Identical Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance
as of
December 31,
2009
Mortgage loans awaiting sale $—$ 264,625 $—$ 264,625
Other Real Estate Owned — — 17,793 17,793
Total assets at fair value
on a non-recurring basis $—$ 264,625 $ 17,793 $ 282,418
Fair Value at
December 31, 2008
(dollars in thousands)
Quoted prices
in Active Markets
for Identical Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance
as of
December 31,
2008
Mortgage loans awaiting sale $—$ 68,731 $—$ 68,731
Total assets at fair value
on a non-recurring basis $—$ 68,731 $—$ 68,731
2009