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Navy Federal Credit Union • 2013 Financial Section
52
2013 ANNUAL REPORT
Mortgage Servicing Rights (MSRs)
Mortgage servicing rights do not trade in an active, open market with readily observable prices.
Accordingly, Navy Federal obtains the fair value of the MSRs using a third-party pricing provider.
The provider uses a combination of market and income valuation methodologies. All assumptions are
market driven. Once the preliminary results are complete, they are further calibrated to observable
market transactions, when they exist.
Borrowings, including Federal Home Loan Bank (FHLB) Borrowed Funds
FHLB debt comprises both short-term (operational) and long-term (strategic) debt. The fair value
of FHLB borrowings is based on the present value of future discounted cash flows using implied
forward rates.
The estimated fair values of financial instruments at December 31, 2013 and 2012 were:
(dollars in thousands)
   
   

Cash $ 501,906 $ 501,906 $ 366,496 $ 366,496
Short-term investments 415,003 415,003 1,785,003 1,785,003
Securities available-for-sale 11,903,235 11,903,235 12,679,523 12,679,523
Securities held-to-maturity 377,034 377,012 469,752 485,490
Mortgage loans awaiting sale 507,948 507,948 1,442,868 1,442,868
Loans to members, net of
allowance for loan losses 38,977,357 43,822,134 33,180,033 38,725,919
Interest-bearing deposits 740 740 100,940 101,069
Investments in FHLBs 332,631 332,631 403,797 403,797
Mortgage servicing rights 236,579 236,579 144,089 144,089
Other assets 37,778 37,778 56,941 56,941

Members’ accounts $ 40,024,041 $ 38,562,152 $ 37,365,432 $ 37,013,982
Securities sold under
repurchase agreements 1,404,299 1,403,804 50,000 51,116
Notes payable 6,923,835 7,243,212 8,354,185 9,055,340
Other liabilities 131 131 7,597 7,597
ASC 825-10 also requires the disclosure of all significant concentrations of credit risk arising from
financial liabilities, whether from an individual counterparty or groups of counterparties. Navy Federal
has assessed the counterparty credit risk on its financial liabilities and has determined that it is not
material to the financial statements.