E x p a n d i n g H o r i z o n s

N O R T H R O P G R U M M A N

F E D E R A L C R E D I T U N I O N

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A N N U A L R E P O R T

Dick UnderhillChairman

Leroy HornDirector

Phil Harrott1st Vice-Chairman

Northrop Grumman Federal Credit UnionBoard of Directors

Stan SwensonSecretary/Treasurer

George BardizbanianDirector

Chris HernandezDirector

Ted HruskaDirector

Nils JohnsonDirector

Mitch MrozDirector

Bernie SlotnickDirector

Georgetta Wolff2nd Vice Chairman

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Northrop Grumman Federal CreditUnion’s operations are affected everyyear by various forces that can influencean organization’s efforts to provide supe-rior products and services. Economiccycles run their course, legislative agen-das take new form, aerospace realign-ments ebb and flow. Your credit unionhas responded and will continue torespond to these changing forces withforesight and creativity, adapting in theinterests of our member owners.

One of the unique features of the creditunion is the immediacy with which weare able to respond to members’ needs.The inevitable, and somewhat feared,cross-over to the year 2000 happenedwithout a glitch. Thanks to the stringentguidelines established by the NCUA andour own concern for providing seamlessoperational support and security, oursystems were updated and tested longbefore the end of 1999. One positiveaspect of the Y2K phenomenon was thefocus it placed on our reliance on tech-nology. We already take for granted thepeace of mind, security and convenienceprovided by instantaneous updating ofour credit union records and accessibil-ity to our funds in a myriad of electron-ic formats.

Fifty-Three Years of ServiceYour credit union has always taken avery conservative approach to managingyour funds. Born out of need, with acommitment to the principles of honestyand fair play, Northrop Grumman

Federal Credit Union was founded onAugust 29, 1946 as a benefit to Northropemployees. Over the past fifty-threeyears, we’ve helped hundreds of thou-sands of members and their familiesachieve their personal dreams of owninga home, acquiring a college education,buying a new car, saving for that once-in-a-lifetime vacation or as an addedresource for retirement. We’ve exploredthe best ways to build your relationshipwith us and at the same time balance theneeds of all our members.

Meeting Modern ChallengesAs our world has become smallerthrough advancements in communica-tion and travel, it has become a biggerchallenge to maintain a fair and equi-table balance of membership benefitsand at the same time provide the ser-vices members need. From traditionalperson-to-person service to cutting edgeInternet and loan-by-phone technolo-gies, the Credit Union is vigilant in itsefforts to provide the products, servicesand account access our members desireand will use. The Board of Directors,management and employees pledge tocontinue our commitment to service asone of the primary operating principlesof the credit union.

New Main Office LocationOne of the challenges faced by the CreditUnion last year was our move to our newoffices in Gardena, California. Thismajor undertaking was accomplishedwhile continuing to serve the daily finan-

Expanding Horizons

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cial requirements of our members. Inorder to maintain branch services withpublic access in the Hawthorne area, weopened a new branch on NorthropGrumman Corporation property nearthe Hawthorne Airport. In addition, alisting of the CU Service Centers in thearea was mailed to members living in thevicinity.

Merger Beneficial To AllOn an entirely different front, the CreditUnion is expanding its resources into theeastern United States with the merging ofFriendship Federal Credit Union andNorthrop Grumman Federal CreditUnion. The more than 6,000 formerFriendship members will soon haveaccess to all the same benefits of mem-bership enjoyed by all Credit Unionmembers. Friendship’s offices in theBaltimore area will become full servicebranches of Northrop Grumman FederalCredit Union serving the needs of all ourmembers in the eastern United States.

Even with all the changes the CreditUnion experienced in 1999, our fore-most goal is to maintain and enhanceour relationship with each of you. Wecan help during times when you areexperiencing employment challenges,relocation, or economic losses or gains.As always, we want to work with you tomake your dreams for a better life cometrue.

Savings

Regular SharesA minimum deposit of $5 in a basicshare account entitles members to fulluse of all eligible Credit Union productsand services. Dividends are paid onaccounts with an average daily balanceof $100 or greater. Dividends aredeclared prior to the beginning of eachmonth and paid monthly.

Money Market SavingsMoney Market Savings accounts offer acompetitive dividend rate on minimumdeposits of $2,500.

Term SavingsTerm Accounts offer higher yields with 6and 30 month and 1, 2, 3, 4 and 5 yearterms and require a minimum deposit of$5,000. A .25% bonus dividend is paidon term accounts with minimumdeposits of $40,000.

IRA SavingsIRA Accounts offer the same high yieldsas our Term Accounts for terms of 1, 2,

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3, 4 and 5 years with a minimum depositof $2,000. An IRA Accumulation accountrequires only a $5 minimum balanceand pays the same rate as the ShareSavings Account.

Loans

First Trust DeedsYou may choose from a fixed oradjustable rate with terms of 15 to 30years. First-time home buyers may put aslittle as 5% down.

Home Equity Line of CreditOur no-fee HELOC offers up to 90%financing less the balance of the FirstMortgage, terms of up to 15 years andlines of credit up to $100,000.

Moneymaster Line of CreditAn unsecured line of credit that can actas a no-fee source of overdraft protec-tion on your checking account.

New & Used Auto LoansThe same low rates are offered for ourNew and Used Auto loans. Auto loanrates may be lowered even further byusing a number of our other value addedproducts and services.

MasterCardBoth our B-2 Image and GoldMasterCard provide worldwide accep-tance. With credit limits up to $25,000and no annual fee, our MasterCard pro-gram offers low variable or fixed interestrates.

Additional LoansShare/Stock Secured, Computer, RV,Motorcycle, Boat and Signature loansare also available at competitive rates.

Financial Planning

Annuities, Mutual Funds,Stocks, Bonds and InsuranceFlight Plan Financial Services, Inc., is awholly-owned subsidiary of NorthropGrumman Federal Credit Union. Formore details about the investment andfinancial planning programs offered byFlight Plan, call (800) 200-1121.

Mutual funds, annuities and other investments available throughFlight Plan Financial Services and Linsco/Private Ledger are notdeposits in Northrop Grumman FCU, are not insured by the NCUSIF,nor are they obligations of, or guaranteed by Northrop GrummanFCU. Such investments may fluctuate in value and are subject toinvestment risks, including loss of some or all of the principal.

All member accounts are federally insured to$100,000 by the NCUSIF (National CreditUnion Share Insurance Fund), the strongestgovernment-backed fund available. IRAs areseparately insured up to an additional$100,000.

NCUA

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Convenience Services

Reflecting our efforts to find effective solutionsto fulfill the diverse requirements of our mem-bership, Northrop Grumman Federal CreditUnion continues to expand the services thatmake us convenient and reliable.

Direct Deposit/PayrollDeductionThere’s no need to visit a branch officeto deposit your payroll check. Simplyset up Direct Deposit through yourcompany’s payroll department andyour funds will be transferred automa-tically to your Credit Union account.

Loan Center 2424 hours a day, 7 days a week, getthe loan approval you need rightfrom the nearest telephone.

the_Max!On-line account access is convenient,fast and secure. You are never furtherfrom your Credit Union account thanthe nearest internet connection.

Check/ATM CardThe new Check/ATM card gives youthe peace of mind of easy ATM accessand the convenience of credit-card-like checking account access…all inone convenient card.

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Call 24No branch, no computer? Noworries. Call 24 offers conve-nient account access with anytouch tone telephone 24 hours aday, 7 days a week.

MasterCardLow interest rates and noannual fee make the B-2Image and Gold Master-Cards a valued part of theNGFCU service package.

Share Draft(Checking)No per-check transactionfee, no monthly servicecharge, and dividendearning power continue tomake the NGFCU check-ing account a value to ourmembers.

CU Service CentersMany other credit unions offer

convenient access to your NGFCUaccount right in their branch office.Simply call 1-888-CU-SWIRL for theshared branch nearest you.

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Consolidated Statement of Financial Condition

DECEMBER 31, 1999

ASSETSCash and cash equivalents $ 14,691,541Investments

Available-for-sale 113,577,721Held-to-maturity 394,323Other 3,539,962

Loans to members, net of the allowance for loan losses 157,241,216Accrued interest receivable 1,663,156Property and equipment 3,905,772National Credit Union Share Insurance Fund deposit 2,460,436Other assets 1,748,095

$ 299,222,222____________________

LIABILITIES AND EQUITYLIABILITIESMembers’ shares $ 258,540,273Accrued expenses and other liabilities 1,683,811

Total liabilities 260,224,084

EQUITYRetained earnings, substantially restricted 41,866,220Accumulated other comprehensive income (2,868,082)

Total equity 38,998,138$ 299,222,222____________________

Consolidated Statement of Income

FOR THE YEAR ENDING DECEMBER 31, 1999

INTEREST INCOMEInterest on loans to members $ 13,833,409Interest on investments and cash equivalents 7,855,005

21,688,414

INTEREST EXPENSEDividends on members’ shares $ 9,305,709

NET INTEREST INCOME 12,382,705

PROVISION FOR LOAN LOSSES 1,613,743NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,768,962

NON-INTEREST INCOME 1,561,61912,330,581

GENERAL AND ADMINISTRATIVE EXPENSESSalaries and benefits 4,243,931Operations 4,292,725Occupancy 1,391,580

9,928,236NET INCOME $ 2,402,345____________________

Consolidated Statement of Comprehensive Income

FOR THE YEAR ENDING DECEMBER 31, 1999

NET INCOME $ 2,402,345OTHER COMPREHENSIVE INCOME

Unrealized holding (losses) on investments classified as available-for-sale (3,611,251)COMPREHENSIVE INCOME $ (1,208,906)____________________

The accompanying notes are an integral part of these statements.

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Consolidated Statement of Cash Flow

FOR THE YEAR ENDING DECEMBER 31, 1999

OPERATING ACTIVITIESNet income $ 2,402,345Adjustments to reconciled net income to net cash provided by operating activities:

Amortization of net discount on investments (496,091)Provision for loan losses 1,613,743Depreciation and amortization 973,402Increase in accrued interest receivable (51,855)Decrease in other assets 131,465Decrease in accrued expenses and other liabilities (654,561)

Net cash provided by operating activities 3,918,448

INVESTING ACTIVITIESPurchases of available-for-sale investments (54,874,940)Proceeds from available-for-sale investments 36,932,343Proceeds from held-to-maturity investments 305,788Net increase in other investments (920,837)Net decrease in loans to members 2,168,779Increase in the National Credit Union Share Insurance Fund deposit (168,015)Net purchases of property and equipment (2,187,387)Net cash used in investing activities (18,744,269)

FINANCING ACTIVITIESNet increase in members’ shares 3,642,257

DECREASE IN CASH AND CASH EQUIVALENTS (11,183,564)CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 25,875,105CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,691,541____________________

Consolidated Statement of Equity

FOR THE YEAR ENDING DECEMBER 31, 1999

Net UnrealizedRetained Earnings Gains (Losses) on

Appropriated Available-for-SaleRegulatory Unappropriated Investments Total

Balance,December 31, 1998 $ 5,153,660 $ 34,310,215 $ 743,169 $ 40,207,044

Net income 2,402,345 2,402,345Net change in unrealized

gains (losses) onavailable-for-saleinvestments (3,611,251) (3,611,251)

Appropriations 1,441,801 (1,441,801) 0 0Balance,

December 31, 1999 $ 6,595,461 $ 35,270,759 $ (2,868,082) $ 38,998,138__________ __________ __________ ____________________ __________ __________ __________

The accompanying notes are an integral part of these statements.

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Notes To Consolidated Financial Statements1. SIGNIFICANT ACCOUNTING POLICIESOrganization: Northrop Grumman Federal Credit Union(the credit union) is a cooperative association holding a cor-porate charter under the provisions of the Federal CreditUnion Act.Principles of Consolidation: The accompanying consol-idated financial statements include the accounts of the creditunion and its wholly owned subsidiary, Flight Plan FinancialServices, Inc., a credit union service organization, which pro-vides financial planning for members. Intercompany balancesand transactions have been eliminated in consolidation.Merger with Friendship Federal Credit Union:Effective December 31, 1999, Northrop Grumman FederalCredit Union merged with Friendship Federal Credit Union.These financial statements have been prepared using thepooling of interests method. All material intercompany bal-ances and transactions have been eliminated in consolida-tion. Refer to Note 8 in the Notes to the Financial Statements.Use of Estimates in the Preparation of FinancialStatements: The preparation of financial statements in con-formity with generally accepted accounting principlesrequires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities at thedate of the financial statements and the reported amounts ofincome and expenses during the reporting period. Actualresults could differ from those estimates.Members’ Shares: Members’ shares are savings depositaccounts of the owners of the credit union. Share ownershipentitles the members to vote in the annual elections of theBoard of Directors and on other corporate matters.Irrespective of the amount of shares owned, no member hasmore than one vote. Members’ shares are subordinated to allother liabilities of the credit union liquidation. Dividends onmembers’ shares are based on available earnings at the endof a dividend period and are not guaranteed by the creditunion. Dividend rates are set by the credit union’s Board ofDirectors.Cash and Cash Equivalents: Cash and cash equivalentsconsist of cash on hand, demand deposits, and non-termshare deposits in a corporate credit union.Investments: Investments that the credit union has both thepositive intent and ability to hold to maturity are classified asheld-to-maturity and are carried at amortized cost.Investments that the credit union intends to hold for an indef-inite period of time, but not necessarily to maturity, are clas-sified as available-for-sale and are carried at fair value.Unrealized gains and losses on investments classified as avail-able-for-sale have been accounted for as a separate compo-nent of equity. Other investments are classified separately andare stated as cost.Loans to Members and Allowance for Loan Losses:Loans are stated at the amount of unpaid principle, reducedby an allowance for loan losses and deferred net loan origi-nation fees. Interest on loans to members is recognized overthe terms of the loans and is calculated on principal amountsoutstanding. Loan fees and certain direct loan originationcosts are deferred, and the net fee or cost is recognized as anadjustment to interest income.The allowance for loan losses is increased by a provision forloan losses charged to expense and decreased by charge-offs(net of recoveries). The allowance is an amount managementbelieves will be adequate to absorb estimated losses on exist-ing loans. Management’s periodic evaluation of the adequacy

of the allowance is based on the credit union’s past loan lossexperience, known and inherent risks in the portfolio,adverse situations that may affect the borrower’s ability torepay, estimated value of any underlying collateral, and cur-rent economic conditions.Accrued Interest on Loans: Accrual of interest on loansis discontinued when management believes, after consideringeconomics, business conditions, and collection efforts, thatthe borrower’s financial condition is such that collection ofinterest is doubtful. Income is subsequently recognized onlyto the extend cash payments are received until, in manage-ment’s judgment, the borrower’s ability to make periodicinterest and principal payments is back to normal, in whichcase the loan is returned to accrual status.Property and Equipment: Property and equipment arecarried at cost, less accumulated depreciation and amortiza-tion. Depreciation is calculated using the straight-line methodover the estimated useful lives of the assets.The facilities for the credit union’s corporate offices wereprovided rent-free by Northrop Grumman Corporationthrough October 1999. The credit union continues to receivesupport for it’s branch locations. The fair value of this contri-bution to the credit union is not recorded.National Federal Credit Union Share InsuranceFund Deposit: The deposit in the National Federal CreditUnion Share Insurance Fund (NCUSIF) is in accordance withNCUA regulations, which require the maintenance of a depositby each federally insured credit union in an amount equal to1% of its insured members shares. The deposit would berefunded to the credit union if its insurance coverage is ter-minated, if it converts its insurance coverage to anothersource, or if management of the fund is transferred from theNCUA Board.NCUSIF Insurance Premium: The credit union isrequired to pay an annual insurance premium equal to one-twelfth of one percent of the total insured shares, unless thepayment is waived or reduced by the NCUA Board. The NCUABoard waived the 1999 insurance premium.Retained Earnings: The credit union is required to appro-priate a portion of retained earnings. This appropriation rep-resents a regulatory restriction of retained earnings.Income Taxes: The credit union is exempt, by statute, fromfederal and state income taxes. The credit union’s whollyowned subsidiary, Flight Plan Financial Services, is subject tofederal and state income taxes.Reclassifications: Certain account reclassifications havebeen made to the financial statements of the prior year inorder to conform to classifications used in the current year.Supervisory Committee: The credit union has an auditcommittee that is appointed by the Board of Directors. Thecommittee meets with management, officials, and their inde-pendent accountants to review the financial affairs of thecredit union. The committee reports to the membership at theannual meeting.New Accounting Pronouncements: On January 1, 1998,the credit union adopted Statement of Financial AccountingStandard No. 130, Reporting Comprehensive Income.Accordingly, the Statement of Comprehensive Income isincluded in the these financial statements. This standardrequires that certain items not already included in the deter-mination of net income and which affect the change in equityduring the reporting period be reported as part of compre-hensive income in the period in which they are recognized.

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Notes To Consolidated Financial Statements2. LOANS TO MEMBERS

Loans to members consist of the following:

Mortgage loans:Fixed rate $ 34,212,254Variable rate 11,694,605Home equity line of credit,

variable rate 22,552,135__________68,458,994

Vehicle loans 51,171,990Credit card loans, unsecured 17,089,986Consumer loans, primarily unsecured 23,804,076__________

160,525,046Deferred net loan origination fees (179,493)Allowance for loan losses (3,104,337)__________

$ 157,241,216____________________Weighted average yield 8.7%____________________

In the ordinary course of business, the credit union makesloans to its directors and officers at the same terms as thoseprevailing at the time of origination for comparable transac-tions with other members. Loans to directors and officers atDecember 31, 1999 total $764,000.

The following is an analysis of the allowance for loan losses:

Balance, beginning of year $ 2,761,047Provision for loan losses 1,613,743Recoveries 79,479Loans charged off (1,349,932)__________Balance, end of year $ 3,104,337____________________

Available credit on home equity and unsecured lines of cred-it is summarized as follows:

Home equity $ 17,613,000Credit card 47,640,000Other consumer 47,869,000__________

$ 113,122,000____________________

Commitments for home equity and unsecured lines of creditmay expire without being drawn upon. Therefore, the totalcommitment amount does not necessarily represent futurerequirements of the credit union. These commitments arenot reflected in the financial statements.

Mortgage loans serviced for Fannie Mae are not included inthe accompanying consolidated statements of financial con-dition. The unpaid principal balances of these loans atDecember 31, 1999 are $250,000.

3. PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:

Data processing equipment $ 5,621,970Facility improvement 2,389,994Furniture and equipment 3,373,090__________

11,385,054

Accumulated depreciation and amortization (7,479,282)__________

$ 3,905,772____________________

The credit union leases four offices. The operating leasescontain renewal options and provisions requiring the creditunion to pay property taxes and operating expenses overbase period amounts. All rental payments are dependent onlyupon the lapse of time. Minimum rental payments underoperating leases with initial or remaining terms of one yearor more at December 31, 1999, are as follows:

2000 $ 717,0002001 727,0002002 730,0002003 673,000Subsequent years 3,798,000__________

$ 6,645,000____________________

Rental expense for the year ended December 31, for all facil-ities leased under operating leases totaled $327,000.

4. MEMBERS’ SHARES

Members’ shares and weighted average costs are summa-rized as follows:

Regular shares 3.1% $ 79,446,349Share draft accounts 1.3% 36,044,131Money market accounts 4.4% 60,381,440Individual retirement

accounts 3.5% 6,000,027Certificates 5.4% 75,828,783______ __________

257,700,730Dividends payable 839,543__________

3.9% $ 258,540,273______ ________________ __________

Shares by maturity are summarized as follows:

No contractual maturity $ 181,871,9470 - 1 year maturity 69,261,5031 - 2 year maturity 4,451,2112 - 3 year maturity 912,1593 - 4 years maturity 539,255Over 4 years maturity 664,655__________

$ 257,700,730____________________

Dividends paid on members’ shares for the year endedDecember 31, 1999 total $9,228,000.

Regular shares, share draft accounts, money marketaccounts, and individual retirement account shares have nocontractual maturity. Certificate accounts have maturities asnoted above.

The credit union provides up to $100,000 insurance throughthe National Credit Union Share Insurance Fund.

The aggregate amount of shares which exceed insured limitsas of December 31, 1999 is approximately $9,430,000.

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Notes To Consolidated Financial Statements5. CONCENTRATIONS OF CREDIT RISK

Participation in the credit union is limited to those individu-als who qualify for membership. The field of membership isdefined in the credit union's bylaws. A large percentage of thecredit union’s members are employees or former employeesof Northrop Grumman Corporation. Further, a significantconcentration of members resides in Southern California.Although the credit union has a diversified loan portfolio,borrowers’ ability to repay loans may be affected by the eco-nomic climate of either the aerospace industry or the overallgeographic region in which borrowers reside.

6. COMMITMENTS AND CONTINGENT LIABILITIES

The credit union is involved in ongoing litigation regardingcertain adjustments to its franchise tax returns for the years1979 through 1987. In 1989, the credit union paid, underprotest, $1,956,007 of additional franchise tax assessed bythe Franchise Tax Board (FTB).

In January 1995, a ruling was issued at the Superior Courtlevel in favor of the FTB. As a result of this ruling, the creditunion in February 1995 paid, under protest, interest of$2,590,639 on the additional tax. However, management andcounsel for the credit union believe its position has merit andhave appealed the ruling. It is not possible to determine whatthe outcome of this matter will be.

In 1987, the credit union changed from a state charter to afederal charter. Thus, beginning in 1988, the credit union isno longer subject to franchise taxes.

The credit union is a party to various miscellaneous legalactions normally associated with financial institutions, theaggregate effect of which, in management’s and legal coun-sel’s opinion, would not be material to the financial conditionof the credit union.

The credit union utilizes a demand loan agreement with acorporate credit union. The terms of this agreement call forthe pledging of all assets as security for any and all obligationstaken by the credit union under this agreement. The agree-ment provides for a credit limit of $5,000,000 with interestcharged at a rate determined by the lender on a periodicbasis. Currently, there is no outstanding balance under thisagreement. The agreement is reviewed for continuation by thelender and the credit union annually.

The credit union is a member of the NCUA Central LiquidityFacility (Facility), which was formed to assist member creditunions in meeting short-term liquidity needs. Membership isobtained through investment in shares of the Facility as deter-mined by a statutory formula. As of December 31, 1999, thecredit union had not borrowed from this Facility.

The credit union has no outstanding commitments to sellloans or investments at December 31, 1999.

7. EMPLOYEE BENEFITS

The credit union staff are participants in the pension plan ofNorthrop Grumman Corporation. Since the credit union staffare only fractional participants in the plan, it is not practica-ble to disclose actuarial benefit data. The credit union fundsthe plan through Northrop Grumman Corporation.

8. MERGER WITH FRIENDSHIP FEDERAL CREDIT UNION

On December 31, 1999, the credit union merged with Friend-ship Federal Credit Union. The merger was accounted for asa pooling of interest. The following account balances werereflected on the unaudited financial statements of FriendshipFederal Credit Union at December 31, 1999 and 1998.

1999 1998__________ __________

Total Assets $ 15,056,000 $ 15,386,000

Allowance for loan losses (246,000) (188,000)

Retained Earnings 309,000 323,000

Net (loss) income (14,000) 16,000

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value amounts have been determined bythe credit union using available market information andappropriate valuation methodologies. However, considerablejudgment is necessarily required to interpret market data todevelop the estimates of fair value. Accordingly, the estimatespresented herein are not necessarily indicative of the amountsthe credit union could realize in a market exchange. The useof different assumptions and/or estimation methodologiesmay have a material effect on the estimated fair valueamounts.

The following methods and assumptions were used to esti-mate fair value of each class of financial instruments forwhich it is practicable to estimate fair value:

Investments: Estimated fair values for investments areobtained from quoted market prices where available. Wherequoted market prices are not available, estimated fair valuesare based on quoted market prices of comparable instru-ments.

Loans to Members: The estimated fair value for all fixedrate loans is determined by discounting the estimated cashflows using the current rate at which similar loans would bemade to borrowers with similar credit ratings and maturities.

The estimated fair value for variable rate loans is the carryingamount. Credit card loans are considered, for estimation offair value purposes, variable rate loans since interest ratesmay be changed by the credit union.

The impact of delinquent loans on the estimation of the fairvalues described above is not considered to have a materialeffect and, accordingly, delinquent loans have been disre-garded in the valuation methodologies employed.

Members’ Shares: The estimated fair value of demanddeposit accounts (regular share, share draft, money marketand IRA share accounts) is the carrying amount. The fairvalue of fixed-maturity certificates of deposit is estimated bydiscounting the estimated cash flows using the current rate atwhich similar certificates would be issued.

Other On-Balance-Sheet Financial Instruments:Other on-balance-sheet financial instruments include cashand cash equivalents, accrued interest receivable, NationalFederal Credit Union Share Insurance Fund deposits, andaccrued expenses and other liabilities. The carrying value ofeach of these financial instruments is a reasonable estimationof fair value.

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Notes To Consolidated Financial StatementsOff-Balance-Sheet Financial Instruments: Estimatedfair value for the credit union's loan commitments is the car-rying amount.

Financial instruments where the estimated fair value is differ-ent from the carrying value and is not disclosed elsewhere inthe Notes to Financial Statements are summarized as follows:

Carrying EstimatedValue Fair Value__________ __________

Loans to members $ 157,241,000 $ 155,307,000

Members’ shares $ 258,540,000 $ 258,498,000

10. INVESTMENTS

Investments classified as available-for-sale consist of the following:

Amortized Unrealized Unrealized FairCost Gains Losses Value__________ __________ __________ __________

U.S. government obligationsand federal agencies securities $ 42,812,831 $ 8,743 $ (744,557) $ 42,077,017

Mortgage-backed securities 73,632,972 78,644 (2,210,912) 71,500,704__________ __________ __________ __________$ 116,445,803 $ 87,387 $ (2,955,469) $ 113,577,721__________ __________ __________ ____________________ __________ ___________ __________

Investments classified as held-to-maturity consist of the following:

Amortized Unrealized Unrealized FairCost Gains Losses Value__________ __________ __________ __________

U.S. government obligationsand federal agencies securities $ 200,000 $ 0 $ (4,537) $ 195,463

Mortgage-backed securities 194,323 674 0 194,997__________ __________ __________ __________$ 394,323 $ 674 $ (4,537) $ 390,460__________ __________ __________ ____________________ __________ ___________ __________

Other investments consist of the following:

NCUA Central Liquidity Fund $ 835,456Certificates of deposit in banks and savings and loans 999,106Member capital account in a corporate credit union 705,400Permanent capital account in a corporate credit union 1,000,000__________

$ 3,539,962____________________

Certificates are generally non-negotiable and non-transferable, and may incur substantial penalties for withdrawal prior tomaturity.

Permanent capital accounts are uninsured equity capital accounts and are redeemable only if called by the corporate creditunion. Member capital accounts are uninsured equity capital accounts that may be redeemed with a three-year notice. The fairvalue of other investments approximates book value.

At December 31, 1999 there were approximately $7,571,000 in credit union and bank deposits with individual balances inexcess of the insured limit. As of December 31, 1999, uninsured deposits do not have a maturity.

Investments by maturity are summarized as follows:

Available- Held-tofor-Sale Maturity Other Total__________ __________ __________ __________

No contractual maturity $ 0 $ 0 $ 2,704,506 $ 2,704,506Less than 1 year maturity 997,456 200,000 198,000 1,395,4561 - 5 years maturity 10,811,653 0 637,456 11,449,109Over 5 years maturity 30,267,908 0 0 30,267,908Mortgage-backed securities 71,500,704 194,323 0 71,695,027__________ __________ __________ __________

$ 113,577,721 $ 394,323 $ 3,539,962 $ 117,512,006__________ __________ __________ ____________________ __________ __________ __________Weighted average yield 6.4% 6.8% 6.0% 6.3%__________ __________ __________ ____________________ __________ __________ __________

Expected maturities of debt securities, including mortgage-backed securities, may differ from contractual maturities becauseborrowers may have the right to call or prepay the obligations. Member and permanent capital accounts have been classifiedwith no contractual maturity.

End of Notes

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Independent Auditor’s Report

February 11, 2000

Supervisory CommitteeNorthrop Grumman Federal Credit UnionGardena, California

Committee Members:

We have audited the accompanying consolidated statements of financial condition of NorthropGrumman Federal Credit Union (a federally chartered credit union) and subsidiary as of December31, 1999 and the related consolidated statements of income and comprehensive income, equity, andcash flows for the year then ended. These financial statements are the responsibility of the creditunion’s management. Our responsibility is to express an opinion on these financial statements basedon our audit.

We conducted our audit in accordance with generally accepted auditing standards. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the finan-cial statements are free of material misstatements. An audit includes examining, on a test basis, evi-dence supporting the amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe our audit provides a reasonablebasis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, theconsolidated financial position of Northrop Grumman Federal Credit Union and subsidiary as ofDecember 31, 1999 and the consolidated results of operations and cash flows for the year thenended, in conformity with generally accepted accounting principles.

O’Rourke Sacher & MoultonProfessional CorporationCertified Public Accountants

Locations Serving the Membership

Main Office* Mail Address879 W. 190th Street Box Number 5011Gardena. CA 90248 Hawthorne, CA 90251

(310) 808-4000 • (800) 633-2848

Plant One* West Complex*One Northrop Ave., Gate 5 501 Hornet Way

Hawthorne, CA 90250 El Segundo, CA 90245

Pico Rivera* Plant 3*8605 E. Washington Blvd. One Northrop Ave., Gate 16

Pico Rivera, CA 90660 Hawthorne, CA 90250

Antelope Valley Perry1154 Commerce Center Drive One Northrop Place

Lancaster, CA 93534 Perry, GA 31069

Lake Charles* St. Augustine*4400 Sen. J. B. Johnson Ave. 5000 U.S. 1 North

Lake Charles, LA 70615 St. Augustine, FL 32085

Glen Burnie* Linthicum*898 Airport Park Road 1580B West Nursery RoadGlen Burnie, MD 21601 Linthicum, MD 21061

Rolling Meadows*600 Hicks Road

Rolling Meadows, IL 60008

Norteller ATMs also located at:

B-2 Site 4, Palmdale B-2 Rex Road, Pico Rivera3520 East Avenue M 8600 E. Washington Blvd.

*On-site credit union Norteller ATM locations

Board Members Emeritus

Betty BurtisDick Lindsey

Supervisory Committee

Al EldridgeChairman

Dick Daley Ted HruskaMember Member

Credit Committee

Jim BarnfatherChairman

Pat Phillips Dick WintersMember Member

PRSRT STDU.S. POSTAGE

PAIDSUN VALLEY, CA

PERMIT NO. 8Box Number 5011Hawthorne, California 90251-5011

See “the_ Max!”at www.norgrumfcu.org