Navy Federal Credit Union 2005 Annual Report Download - page 47

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17
Note 15: Reserves and Undivided Earnings
Navy Federal is subject to regulatory capital requirements adminis-
tered by the NCUA. Failure to meet minimum capital requirements
can initiate certain mandatory—and possibly additional discre-
tionary—actions by regulators that, if undertaken, could have a
direct material effect on Navy Federal’s consolidated financial
statements. Under capital adequacy regulations and the regulatory
framework for prompt corrective action, Navy Federal must meet
specific capital requirements that involve quantitative measures
of Navy Federal’s assets, liabilities and certain commitments as
calculated under generally accepted accounting principles. Navy
Federal’s capital amounts and net worth classification are also
subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require Navy Federal to maintain minimum amounts and
ratios (set forth in the following table) of net worth to total assets.
Credit unions are also required to calculate a risk-based net worth
(RBNW) requirement that establishes whether the credit union will
be considered “complex” under the regulatory framework. Navy
Federal’s RBNW requirement as of December 31, 2005, was 4.60%,
which is less than the regulatory threshold of 6% that would place
Navy Federal in the “complex” category. Management believes as
of December 31, 2005, that Navy Federal met all RBNW capital
adequacy requirements to which it is subject.
As of December 31, 2005, the most recent call reporting period,
the NCUA categorized Navy Federal as “well capitalized” under the
regulatory framework for prompt corrective action with a net worth
of 10.92%. Net worth for this calculation is defined as undivided
earnings plus regular and capital reserves. To be categorized as
“well capitalized,” Navy Federal must maintain a minimum net
worth ratio of 7% of assets. There are no conditions or events
since that notification that management believes have changed
the institution’s category.
The Credit Union’s actual capital amounts and ratios as of
December 31, 2005 and 2004 are also presented in the table
(dollars in thousands):
Actual Net Worth Minimum Net Worth to be
“Well Capitalized”
Amount Ratio Amount Ratio
Dec. 31,
2005 $ 2,692,430 10.92% $ 1,725,105 7.00%
Dec. 31,
2004 $ 2,426,117 10.60% $ 1,602,785 7.00%