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Federally chartered corporation | 52-0883107 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
3900 Wisconsin Avenue, NW Washington, DC (Address of principal executive offices) | 20016 (Zip Code) |
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Item 1. | Business |
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• | a $7.0 billion net decrease in earnings for periods prior to January 1, 2002 (as reflected in beginning retained earnings as of January 1, 2002); | |
• | a $705 million net decrease in earnings for the year ended December 31, 2002; | |
• | a $176 million net increase in earnings for the year ended December 31, 2003; and | |
• | a $1.2 billion net increase in earnings for the six months ended June 30, 2004. |
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• | OurSingle-Family Credit Guarantybusiness (“Single-Family”) works with our lender customers to securitize single-family mortgage loans into Fannie Mae MBS and to facilitate the purchase of single-family mortgage loans for our mortgage portfolio. Our Single-Family business has responsibility for managing our credit risk exposure relating to the single-family Fannie Mae MBS held by third parties (such as lenders, depositories and global investors), as well as the single-family mortgage loans and single-family Fannie Mae MBS held in our mortgage portfolio. Our Single-Family business also has responsibility for pricing the credit risk of the single-family mortgage loans we purchase for our mortgage portfolio. Revenues in the segment are derived primarily from the guaranty fees the segment receives as compensation for assuming the credit risk on the mortgage loans underlying single-family Fannie Mae MBS and on the single-family mortgage loans held in our portfolio. | |
• | OurHousing and Community Developmentbusiness (“HCD”) helps to expand the supply of affordable and market-rate rental housing in the United States by working with our lender customers to securitize multifamily mortgage loans into Fannie Mae MBS and to facilitate the purchase of multifamily mortgage loans for our mortgage portfolio. Our HCD business also helps to expand the supply of affordable housing by making investments in rental and for-sale housing projects, including investments in rental housing that qualify for federal low-income housing tax credits. Our HCD business has responsibility for managing our credit risk exposure relating to the multifamily Fannie Mae MBS held by third parties, as well as the multifamily mortgage loans and multifamily Fannie Mae MBS held in our mortgage portfolio. Revenues in the segment are derived from a variety of sources, including the guaranty fees the segment receives as compensation for assuming the credit risk on the mortgage loans underlying multifamily Fannie Mae MBS and on the multifamily mortgage loans held in our portfolio, transaction fees associated with the multifamily business and bond credit enhancement fees. In addition, HCD’s investments in housing projects eligible for the low-income housing tax credit and other investments generate both tax credits and net operating losses that reduce our federal income tax liability. | |
• | OurCapital Marketsgroup manages our investment activity in mortgage loans and mortgage-related securities, and has responsibility for managing our assets and liabilities and our liquidity and capital positions. Through the issuance of debt securities in the capital markets, our Capital Markets group attracts capital from investors globally to finance housing in the United States. In addition, our Capital Markets group increases the liquidity of the mortgage market by maintaining a constant, reliable presence as an active investor in mortgage assets. Our Capital Markets group has responsibility for managing our interest rate risk. Our Capital Markets group generates income primarily from the difference, or spread, between the yield on the mortgage assets we own and the cost of the debt we issue in the global capital markets to fund these assets. |
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• | Mortgage Acquisition. As noted above, our Single-Family and HCD business segments work with our lender customers to securitize mortgage loans into Fannie Mae MBS and to facilitate the purchase of mortgage loans for our mortgage portfolio. Accordingly, although the Single-Family and HCD businesses principally manage the relationships with our lender customers, our Capital Markets group works closely with Single-Family and HCD in making mortgage acquisition decisions. Our Capital Markets group works directly with our lender customers on structured Fannie Mae MBS transactions. | |
• | Portfolio Credit Risk Management. Our Single-Family and HCD business segments support our Capital Markets group by assuming and managing the credit risk of borrowers defaulting on payments of principal and interest on the mortgage loans held in our mortgage portfolio or underlying Fannie Mae MBS held in our mortgage portfolio. Our Single-Family business also prices the credit risk of the single-family mortgage loans purchased by our Capital Markets group for our mortgage portfolio. | |
• | Securitization Activities. All three of our business segments engage in securitization activities. Our Single-Family business issues our single-class, single-family Fannie Mae MBS. These securities are principally created through lender swap transactions and constitute the substantial majority of our Fannie Mae MBS issues. The Multifamily Group within our HCD business segment issues our single-class, multifamily Fannie Mae MBS that are principally created through lender swap transactions. Our Capital Markets group creates Fannie Mae MBS using mortgage loans that we hold in our mortgage portfolio and also issues structured Fannie Mae MBS. | |
• | Liquidity Support. The Capital Markets group supports the liquidity of single-family and multifamily Fannie Mae MBS by holding Fannie Mae MBS in our mortgage portfolio. This support of our Fannie Mae MBS helps to maintain the competitiveness of our Single-Family and HCD businesses, and increases the value of our Fannie Mae MBS. | |
• | Mission Support. All three of our business segments contribute to meeting the statutory housing goals established by HUD. We meet our housing goals both by purchasing mortgage loans for our mortgage portfolio and by securitizing mortgage loans into Fannie Mae MBS. Both our Single-Family and HCD businesses securitize mortgages that contribute to our housing goals. In addition, our Capital Markets group purchases mortgages for our mortgage portfolio that contribute to our housing goals. |
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For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
(Dollars in millions) | ||||||||||||
Revenue(1): | ||||||||||||
Single-Family Credit Guaranty | $ | 5,153 | $ | 4,994 | $ | 3,957 | ||||||
Housing and Community Development | 538 | 398 | 305 | |||||||||
Capital Markets | 46,135 | 47,293 | 49,267 | |||||||||
Total | $ | 51,826 | $ | 52,685 | $ | 53,529 | ||||||
Net income: | ||||||||||||
Single-Family Credit Guaranty | $ | 2,514 | $ | 2,481 | $ | 1,958 | ||||||
Housing and Community Development | 337 | 286 | 184 | |||||||||
Capital Markets | 2,116 | 5,314 | 1,772 | |||||||||
Total | $ | 4,967 | $ | 8,081 | $ | 3,914 | ||||||
As of December 31, | ||||||||
2004 | 2003 | |||||||
(Restated) | ||||||||
Total assets: | ||||||||
Single-Family Credit Guaranty | $ | 11,543 | $ | 8,724 | ||||
Housing and Community Development | 10,166 | 7,853 | ||||||
Capital Markets | 999,225 | 1,005,698 | ||||||
Total | $ | 1,020,934 | $ | 1,022,275 | ||||
(1) | Includes interest income, guaranty fee income, and fee and other income. |
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As of December 31, 2004 | ||||||||||||
Conventional(1) | Government(2) | Total | ||||||||||
(Dollars in millions) | ||||||||||||
Mortgage portfolio:(3) | ||||||||||||
Mortgage loans(4) | $ | 345,575 | $ | 10,112 | $ | 355,687 | ||||||
Fannie Mae MBS(4) | 341,768 | 1,239 | 343,007 | |||||||||
Agency mortgage-related securities(4)(5) | 37,422 | 4,273 | 41,695 | |||||||||
Mortgage revenue bonds | 6,344 | 4,951 | 11,295 | |||||||||
Other mortgage-related securities(6) | 108,082 | 669 | 108,751 | |||||||||
Total mortgage portfolio | 839,191 | 21,244 | 860,435 | |||||||||
Fannie Mae MBS held by third parties(7) | 1,319,066 | 32,337 | 1,351,403 | |||||||||
Book of business | 2,158,257 | 53,581 | 2,211,838 | |||||||||
Other(8) | 346 | — | 346 | |||||||||
Total single-family mortgage credit book of business | $ | 2,158,603 | $ | 53,581 | $ | 2,212,184 | ||||||
(1) | Refers to mortgage loans and mortgage-related securities that are not guaranteed or insured by the U.S. government or any of its agencies. | |
(2) | Refers to mortgage loans and mortgage-related securities guaranteed or insured by the U.S. government or one of its agencies. | |
(3) | Mortgage portfolio data is reported based on unpaid principal balance. Our Single-Family business manages the credit risk relating to the single-family mortgage loans and Fannie Mae MBS held in our portfolio that are backed by single-family mortgage loans. Our Capital Markets group manages the institutional counterparty credit risk relating to the agency mortgage-related securities, mortgage revenue bonds and other mortgage-related securities held in our portfolio. | |
(4) | Mortgage loan data includes mortgage-related securities that were consolidated and reported in our consolidated balance sheet as loans. | |
(5) | Includes mortgage-related securities issued by Freddie Mac and Ginnie Mae. | |
(6) | Includes mortgage-related securities issued by entities other than Fannie Mae, Freddie Mac or Ginnie Mae. | |
(7) | Includes Fannie Mae MBS held by third-party investors. The principal balance of resecuritized Fannie Mae MBS is included only once. | |
(8) | Includes additional single-family credit enhancements that we provide not otherwise reflected in the table. |
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• | Single-Family Single-Class Fannie Mae MBSrepresent beneficial interests in single-family mortgage loans held in an MBS trust that were delivered to us typically by a single lender in exchange for the single-class Fannie Mae MBS. The certificate holders in a single-class Fannie Mae MBS issue receive principal and interest payments in proportion to their percentage ownership of the MBS issue. | |
• | Fannie Majors®are a form of single-class Fannie Mae MBS in which generally two or more lenders deliver mortgage loans to us, and we then group all of the loans together in one MBS pool. In this case, the certificate holders receive beneficial interests in all of the loans in the pool and, as a result, may benefit from a diverse group of lenders contributing loans to the MBS rather than having an interest in loans obtained from only one lender, as well as increased liquidity from a larger-sized pool. | |
• | Single-Family Whole Loan Multi-Class Fannie Mae MBSare multi-class Fannie Mae MBS that are formed from single-family whole loans. Our Single-Family business works with our Capital Markets group in structuring these single-family whole loan multi-class Fannie Mae MBS. Single-family whole loan multi-class Fannie Mae MBS divide the cash flows on the underlying loans and create several classes of securities, each of which represents a beneficial ownership interest in a separate portion of the cash flows. |
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As of December 31, 2004 | ||||||||||||
Conventional(1) | Government(2) | Total | ||||||||||
(Dollars in millions) | ||||||||||||
Mortgage portfolio:(3) | ||||||||||||
Mortgage loans(4) | $ | 43,396 | $ | 1,074 | $ | 44,470 | ||||||
Fannie Mae MBS(4) | 505 | 892 | 1,397 | |||||||||
Agency mortgage-related securities(4)(5) | — | 68 | 68 | |||||||||
Mortgage revenue bonds | 8,037 | 2,744 | 10,781 | |||||||||
Other mortgage-related securities(6) | 12 | 46 | 58 | |||||||||
Total mortgage portfolio | 51,950 | 4,824 | 56,774 | |||||||||
Fannie Mae MBS held by third parties(7) | 54,639 | 2,005 | 56,644 | |||||||||
Book of business | 106,589 | 6,829 | 113,418 | |||||||||
Other(8) | 14,111 | 368 | 14,479 | |||||||||
Total multifamily mortgage credit book of business | $ | 120,700 | $ | 7,197 | $ | 127,897 | ||||||
(1) | Refers to mortgage loans and mortgage-related securities that are not guaranteed or insured by the U.S. government or any of its agencies. | |
(2) | Refers to mortgage loans and mortgage-related securities guaranteed or insured by the U.S. government or one of its agencies. | |
(3) | Mortgage portfolio data is reported based on unpaid principal balance. Our HCD business manages the credit risk relating to the multifamily mortgage loans and Fannie Mae MBS held in our portfolio that are backed by multifamily mortgage loans. Our Capital Markets group manages the institutional counterparty credit risk relating to the agency mortgage-related securities, mortgage revenue bonds and other mortgage-related securities held in our portfolio. | |
(4) | Mortgage loan data includes mortgage-related securities that were consolidated and reported in our consolidated balance sheet as loans. | |
(5) | Includes mortgage-related securities issued by Freddie Mac and Ginnie Mae. | |
(6) | Includes mortgage-related securities issued by entities other than Fannie Mae, Freddie Mac or Ginnie Mae. | |
(7) | Includes Fannie Mae MBS held by investors other than Fannie Mae. The principal balance of resecuritized Fannie Mae MBS is included only once. | |
(8) | Includes additional multifamily credit enhancements that we provide not otherwise reflected in the table. |
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• | Multifamily Single-Class Fannie Mae MBSrepresent beneficial interests in multifamily mortgage loans held in an MBS trust and that were delivered to us by a lender in exchange for the single-class Fannie Mae MBS. The certificate holders in a single-class Fannie Mae MBS issue receive principal and interest payments in proportion to their percentage ownership of the MBS issue. | |
• | Discount Fannie Mae MBSare short-term securities that generally have maturities between three and nine months and are backed by one or more participation certificates representing interests in multifamily loans. Investors earn a return on their investment in these securities by purchasing them at a discount to their principal amounts and receiving the full principal amount when the securities reach maturity. Discount MBS have no prepayment risk since prepayments are not allowed prior to maturity. | |
• | Multifamily Whole Loan Multi-Class Fannie Mae MBSare multi-class Fannie Mae MBS that are formed from multifamily whole loans, Federal Housing Administration (“FHA”) participation certificatesand/or Government National Mortgage Association (“Ginnie Mae”) participation certificates. Our HCD business works with our Capital Markets group in structuring these multifamily whole loan multi-class Fannie Mae MBS. Multifamily whole loan multi-class Fannie Mae MBS divide the cash flows on the underlying loans or participation certificates and create several classes of securities, each of which represents a beneficial ownership interest in a separate portion of the cash flows. |
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• | helping to meet the financing needs of single-family and multifamily home builders by purchasing participation interests in acquisition, development and construction (“AD&C”) loans from lending institutions; | |
• | acquiring small multifamily loans from a variety of lending institutions; |
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• | providing financing to designated communities to expand the affordable housing stock in those communities as part of their community development efforts; and | |
• | providing financing for single-family and multifamily housing to housing finance agencies, public housing authorities and municipalities. |
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• | offering to purchase a wide variety of mortgage assets, including non-standard mortgage loan products, which we either retain in our portfolio for investment or sell to other investors as a service to assist our customers in accessing the market; | |
• | segregating customer portfolios to obtain optimal pricing for their mortgage loans (for example, segregating Community Reinvestment Act or “CRA” eligible loans, which typically command a premium); | |
• | providing funds at the loan delivery date for purchase of loans delivered for securitization; and | |
• | assisting customers with the hedging of their mortgage business, including entering into options and forward contracts on mortgage-related securities, which we offset in the capital markets. |
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• | Benchmark Securities®. Through our Benchmark Securities program, we sell large, regularly scheduled issues of unsecured debt. Our Benchmark Securities issues tend to appeal to investors who value liquidity and price transparency. The Benchmark Securities program includes: |
• | Benchmark Billshave maturities of up to one year. On a weekly basis, we auction three-month and six-month Benchmark Bills with a minimum issue size of $1.0 billion. On a monthly basis, we auction one-year Benchmark Bills with a minimum issue size of $1.0 billion. | |
• | Benchmark Noteshave maturities ranging between two and ten years. Each month, we typically sell one or more new, fixed-rate issues of Benchmark Notes through dealer syndicates. Each issue has a minimum size of $3.0 billion. |
• | Discount Notes. We issue short-term debt securities called Discount Notes with maturities ranging from overnight to 360 days from the date of issuance. Investors purchase these notes at a discount to the principal amount and receive the principal amount when the notes mature. | |
• | Medium-Term Notes. We issue medium-term notes (“MTNs”) with a wide range of maturities, interest rates and call features. The specific terms of our MTN issuances are determined through individually-negotiated transactions with broker-dealers. Our MTNs are often callable prior to maturity. We issue both fixed-rate and floating-rate securities, as well as various types of structured notes that combine features of traditional debt with features of other capital market instruments. | |
• | Subordinated Debt. Pursuant to voluntary commitments that we made in October 2000, from time to time we have issued subordinated debt. The terms of our qualifying subordinated debt require us to defer interest payments on this debt in specified limited circumstances. The difference, or spread, between the trading prices of our subordinated debt and our senior debt serves as a market indicator to investors of the relative credit risk of our debt. A narrow spread between the trading prices of our subordinated debt and senior debt implies that the market perceives the credit risk of our debt to be relatively low. A wider spread between these prices implies that the market perceives our debt to have a higher relative credit risk. As of the date of this filing, we had $11.0 billion in qualifying subordinated debt outstanding. We have not issued any subordinated debt since 2003. During 2004, we suspended further issuances of subordinated debt and are not likely to resume issuances until we return to timely reporting of our financial results. Our October 2000 voluntary commitments relating to subordinated debt have been replaced by an agreement we entered into with OFHEO on September 1, 2005, pursuant to which we agreed to maintain a specified amount of qualifying subordinated debt. Although we have not issued subordinated debt since 2003, we are in compliance with our obligations relating to the maintenance of subordinated debt under our September 1, 2005 agreement with OFHEO. For more information on our subordinated debt, see “Item 7—MD&A—Liquidity and Capital Management—Capital Management—Capital Activity—Subordinated Debt.” |
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• | creating and issuing Fannie Mae MBS from our mortgage portfolio assets, either for sale into the secondary market or to retain in our portfolio; and | |
• | issuing structured Fannie Mae MBS for customers in exchange for a transaction fee. |
• | Fannie Megas®, which are resecuritized single-class Fannie Mae MBS that are created in transactions in which a lender or a securities dealer contributes two or more previously issued single-class Fannie Mae MBS or previously issued Megas, or a combination of Fannie Mae MBS and Megas, in return for a new issue of Mega certificates. | |
• | Multi-class Fannie Mae MBS, includingREMICs, which may separate the cash flows from underlying single-classand/or multi-class Fannie Mae MBS, other mortgage-related securities or whole mortgage loans into separately tradable classes of securities. By separating the cash flows, the resulting classes may consist of: (1) interest-only payments; (2) principal-only payments; (3) different portions of the principal and interest payments; or (4) combinations of each of these. Terms to maturity of some multi-class Fannie Mae MBS, particularly REMIC classes, may match or be shorter than the maturity of the underlying mortgage loansand/or mortgage-related securities. As a result, each of the classes in a multi-class Fannie Mae MBS may have a different coupon rate, average life, repayment sensitivity or final maturity. In some of our multi-class Fannie Mae MBS transactions, we may issue senior classes where we have guaranteed to the trust that we will supplement collections on the underlying mortgage assets as required to permit timely payment of principal and interest due on the related senior class. In these multi-class Fannie Mae MBS transactions, we also may issue one or more subordinated classes for which we do not provide a guaranty. Our Capital Markets group may work with our Single-Family or HCD businesses in structuring multi-class Fannie Mae MBS. |
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• | Issuance of Callable and Non-Callable Debt. We issue a broad range of both callable and non-callable debt securities to manage the duration and prepayment risk of expected cash flows of the mortgage assets we own. | |
• | Use of Derivative Instruments. While our debt is the primary means by which we manage our interest rate risk exposure, we supplement our issuance of debt with interest rate-related derivatives to further manage duration and prepayment risk. We use derivatives in combination with our issuance of debt to reduce the volatility of the estimated fair value of our mortgage investments. The benefits of derivatives include: |
— | the speed and efficiency with which we can alter our risk position; and | |
— | the ability to modify some aspects of our expected cash flows in a specialized manner that might not be readily achievable with debt instruments. |
• | Continuous Monitoring of Our Risk Position. We continuously monitor our risk position and actively rebalance our portfolio of interest-rate sensitive financial instruments to maintain a close match between the duration of our assets and liabilities. We use a wide range of risk measures and analytical tools to assess our exposure to the risks inherent in the asset and liability structure of our business and use these assessments in theday-to-day management of the mix of our assets and liabilities. If market conditions do not permit us to fund and manage our investments within our risk parameters, we will not be an active purchaser of mortgage assets. |
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• | provide stability in the secondary market for residential mortgages; | |
• | respond appropriately to the private capital market; | |
• | provide ongoing assistance to the secondary market for residential mortgages (including activities relating to mortgages on housing for low- and moderate-income families involving a reasonable economic return that may be less than the return earned on other activities) by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing; and | |
• | promote access to mortgage credit throughout the nation (including central cities, rural areas and underserved areas) by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing. |
• | Principal Balance Limitations. Our charter permits us to purchase and securitize single-family conventional mortgage loans subject to maximum original principal balance limits. Conventional mortgage loans are loans that are not federally insured or guaranteed. The principal balance limits are often referred to as “conforming loan limits” and are established each year by OFHEO based on the national average price of a one-family residence. In 2004, 2005 and 2006, the conforming loan limit for a one-family residence generally was $333,700, $359,650 and $417,000, respectively. In November 2006, OFHEO announced that the conforming loan limit will remain at $417,000 for 2007. Higher original principal balance limits apply to mortgage loans secured by two- to four-family residences and also to loans in Alaska, Hawaii, Guam and the Virgin Islands. No statutory limits apply to the maximum original principal balance of multifamily mortgage loans (loans secured by properties that have five or more residential dwelling units) that we purchase or securitize. In addition, the Charter Act imposes no maximum original principal balance limits on loans we purchase or securitize that are insured by the FHA or guaranteed by the VA. | |
• | Quality Standards. The Charter Act requires that, so far as practicable and in our judgment, the mortgage loans we purchase or securitize must be of a quality, type and class that generally meet the purchase standards of private institutional mortgage investors. To comply with this requirement and for the efficient operation of our business, we have eligibility policies and make available guidelines for the mortgage loans we purchase or securitize as well as for the sellers and servicers of these loans. | |
• | Loan-to-Value and Credit Enhancement Requirements. The Charter Act requires credit enhancement on any conventional single-family mortgage loan that we purchase or securitize if it has aloan-to-value ratio |
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over 80% at the time of purchase or securitization. Credit enhancement may take the form of insurance or a guaranty issued by a qualified insurer, a repurchase arrangement with the seller of the loans or seller-retained loan participation interests. In addition, our policies and guidelines haveloan-to-value ratio requirements that depend upon a variety of factors, such as the borrower credit history, the loan purpose, the repayment terms and the number of dwelling units in the property securing the loan. Depending on these factors and the amount and type of credit enhancement we obtain, our underwriting guidelines provide that theloan-to-value ratio for loans that we purchase or securitize can be up to 100% for conventional single-family loans; however, from time to time, we may make an exception to these guidelines and acquire loans with aloan-to-value ratio greater than 100%. |
• | Issuances of Our Securities. The Charter Act authorizes us, upon approval of the Secretary of the Treasury, to issue debt obligations and mortgage-related securities. At the discretion of the Secretary of the Treasury, the U.S. Department of the Treasury may purchase obligations of Fannie Mae up to a maximum of $2.25 billion outstanding at any one time. We have not used this facility since our transition from government ownership in 1968. Neither the United States nor any of its agencies guarantees our debt or is obligated to finance our operations or assist us in any other manner. On June 13, 2006, the U.S. Department of the Treasury announced that it would undertake a review of its process for approving our issuances of debt. We cannot predict whether the outcome of this review will materially impact our current business activities. | |
• | Exemptions for Our Securities. Securities we issue are “exempted securities” under laws administered by the SEC. As a result, registration statements with respect to offerings of our securities are not filed with the SEC. In March 2003, however, we voluntarily registered our common stock with the SEC pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”). We are thereby required to file periodic and current reports with the SEC, including annual reports onForm 10-K, quarterly reports onForm 10-Q and current reports onForm 8-K. Since undertaking to restate our 2002 and 2003 consolidated financial statements and improve our accounting practices and internal control over financial reporting, we have not been a timely filer of our periodic reports onForm 10-K orForm 10-Q. We are continuing to improve our accounting and internal control over financial reporting and are striving to become a timely filer as soon as practicable. We are also required to file proxy statements with the SEC. In addition, our directors and certain officers are required to file reports with the SEC relating to their ownership of Fannie Mae equity securities. | |
• | Exemption from Certain Taxes and Qualifications. Pursuant to the Charter Act, we are exempt from taxation by states, counties, municipalities or local taxing authorities, except for taxation by those authorities on our real property. We are not exempt from the payment of federal corporate income taxes. In addition, we may conduct our business without regard to any qualification or similar statute in any state of the United States, including the District of Columbia, the Commonwealth of Puerto Rico, and the territories and possessions of the United States. In accordance with OFHEO regulation, we have elected to follow the applicable corporate governance practices and procedures of the Delaware General Corporation Law, as it may be amended from time to time. | |
• | Structure of Our Board of Directors. The Charter Act provides that our Board of Directors will consist of 18 persons, five of whom are to be appointed by the President of the United States and the remainder of whom are to be elected annually by our stockholders at our annual meeting of stockholders. All members of our Board of Directors either are elected by our stockholders for one-year terms, or until their successors are elected and qualified, or are appointed by the President for one-year terms. The five appointed director positions have been vacant since May 2004. Of the remaining 13 director positions, one director has announced that he will be resigning at the end of 2006. Our Board has determined that |
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all but two of our current directors, one of whom is our Chief Executive Officer, are independent directors under New York Stock Exchange standards. Because we have not held an annual meeting of stockholders since 2004, some of our directors have currently served for longer than one-year terms. |
• | Other Limitations and Requirements. Under the Charter Act, we may not originate mortgage loans or advance funds to a mortgage seller on an interim basis, using mortgage loans as collateral, pending the sale of the mortgages in the secondary market. In addition, we may only purchase or securitize mortgages originated in the United States, including the District of Columbia, the Commonwealth of Puerto Rico, and the territories and possessions of the United States. |
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Goal(1) | Fannie Mae Actual Results(2) | |||||||||||||||
(2002-2004) | 2004 | 2003 | 2002 | |||||||||||||
Low- and moderate-income housing | 50.0 | % | 53.4 | % | 52.3 | % | 51.8 | % | ||||||||
Underserved areas | 31.0 | 33.5 | 32.1 | 32.8 | ||||||||||||
Special affordable housing | 20.0 | 23.6 | 21.2 | 21.4 | ||||||||||||
Multifamily minimum in special affordable housing ($ in billions) | $ | 2.85 | $ | 7.32 | $ | 12.23 | $ | 7.57 |
(1) | Goals are expressed as a percentage of the total number of dwelling units financed by eligible mortgage loan purchases during the period, except for the multifamily subgoal. | |
(2) | Actual results for 2004, 2003 and 2002 reflect the impact of provisions that allow us to estimate the affordability of units with missing income and rent data. Actual results for 2003 and 2002 reflect the impact of incentive points for small multifamily and owner-occupied rental housing, which were no longer available starting in 2004. The source of this data is HUD’s analysis of data we submitted to HUD. Some results differ from the results we reported in our Annual Housing Activities Reports for 2002, 2003 and 2004. |
2005 | 2006 | 2007 | 2008 | |||||||||||||
Housing goals: | ||||||||||||||||
Low- and moderate-income housing | 52.0 | % | 53.0 | % | 55.0 | % | 56.0 | % | ||||||||
Underserved areas | 37.0 | 38.0 | 38.0 | 39.0 | ||||||||||||
Special affordable housing | 22.0 | 23.0 | 25.0 | 27.0 | ||||||||||||
Home purchase subgoals: | ||||||||||||||||
Low- and moderate-income housing | 45.0 | % | 46.0 | % | 47.0 | % | 47.0 | % | ||||||||
Underserved areas | 32.0 | 33.0 | 33.0 | 34.0 | ||||||||||||
Special affordable housing | 17.0 | 17.0 | 18.0 | 18.0 | ||||||||||||
Multifamily minimum in special affordable housing ($ in billions) | $ | 5.49 | $ | 5.49 | $ | 5.49 | $ | 5.49 |
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2005 | ||||||||
Fannie Mae Actual | ||||||||
Goal(1) | Results(2) | |||||||
Housing goals: | ||||||||
Low- and moderate-income housing | 52.0 | % | 55.1 | % | ||||
Underserved areas | 37.0 | 41.4 | ||||||
Special affordable housing | 22.0 | 26.3 | ||||||
Home purchase subgoals: | ||||||||
Low- and moderate-income housing | 45.0 | % | 44.6 | % | ||||
Underserved areas | 32.0 | 32.6 | ||||||
Special affordable housing | 17.0 | 17.0 | ||||||
Multifamily minimum in special affordable housing ($ in billions) | $ | 5.49 | $ | 10.39 |
(1) | The home purchase subgoals measure our performance by the number of loans (not dwelling units) providing purchase money for owner-occupied single-family housing in metropolitan areas. | |
(2) | The source of this data is HUD’s analysis of data we submitted to HUD. Some results differ from the results reported in our Annual Housing Activities Report for 2005. |
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• | generating capital through retained earnings; | |
• | significantly reducing the size of our mortgage portfolio, which reduced our overall minimum capital requirements; | |
• | issuing $5.0 billion in non-cumulative preferred stock in December 2004; | |
• | reducing our quarterly common stock dividend from $0.52 per share to $0.26 per share; and | |
• | canceling our plans to build major new corporate facilities in Southwest Washington, DC and undertaking other cost-cutting efforts. |
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• | if a capital distribution would decrease our total capital below the risk-based capital requirement or our core capital below the minimum capital requirement, we may not make the distribution; | |
• | if we do not meet the risk-based capital requirement but do meet the minimum capital requirement, we may not make any capital distribution that would cause us to fail to meet the minimum capital requirement; and | |
• | if we meet neither the risk-based capital requirement nor the minimum capital requirement, but do meet the critical capital requirement established under the 1992 Act, we may make a capital distribution only if, immediately after making the distribution, we would still meet the critical capital requirement and the Director of OFHEO approves the distribution after determining that specified statutory conditions are satisfied. |
• | As long as the capital restoration plan is in effect, we must seek the approval of the Director of OFHEO before engaging in any transaction that could have the effect of reducing our capital surplus below an amount equal to 30% more than our statutory minimum capital requirement; and | |
• | We must submit a written report to OFHEO detailing the rationale and process for any proposed capital distribution before making the distribution. |
• | our authorized and permissible activities; | |
• | the potential level of our required capital; | |
• | the size and composition of our mortgage investment portfolio (a potential limitation in the House bill and a specific limitation in the Senate bill); | |
• | the levels of affordable housing goals; and | |
• | the process by which any new activities and programs would be approved and the extent of regulatory oversight. |
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• | to create a single independent, well-funded regulator with oversight for safety and soundness and mission; | |
• | to provide the regulator with strong bank-like regulatory powers over capital, activities, supervision and prompt corrective action; | |
• | to provide the regulator with bank-like regulatory authority to reduce on-balance sheet activities, based on safety and soundness; and | |
• | to provide a structure for housing goals that includes an affordable housing fund that strengthens our housing and liquidity mission. |
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• | our intent to submit an updated business plan to OFHEO in early 2007 that may include a request for modest growth in our mortgage portfolio; | |
• | our expectations regarding industry and economic trends, including our expectations that: |
• | growth in total U.S. residential mortgage debt outstanding will continue at a slower pace in 2007, as the housing market continues to cool and home price gains moderate further or decline modestly; | |
• | the continuation of positive demographic trends, such as stable household formation rates, will help mitigate the slowdown in the growth in residential mortgage debt outstanding, but are unlikely to completely offset the slowdown in the short- to medium-term; | |
• | there is a possibility of a modest decline in national home prices in 2007; | |
• | our belief that demographic factors (such as stable household formation rates, a positive age structure of the population for homebuying and rising homeownership rates due to the high level of immigration over the past 25 years) that suggest a fundamentally strong mortgage market will support continued long-term demand for new capital to finance the substantial and sustained housing finance needs of American homebuyers; | |
• | our credit losses will increase and serious delinquencies may trend upward, as a result of the sharp decline in the rate of home price appreciation during 2006 and the possibility of modest home price declines in 2007; |
• | our expectation that we will have finalized and substantially completed implementation of new policies and procedures to strengthen risk management practices relating to AD&C business by December 2006; | |
• | our expectation that, when we expect to earn returns greater than our cost of equity capital, we generally will be an active purchaser of mortgage loans and mortgage-related securities, and that when few opportunities exist to earn returns above our cost of equity capital, we generally will be a less active purchaser, and may be a net seller, of mortgage loans and mortgage-related securities; | |
• | our expectation that we will be an active purchaser of less liquid forms of mortgage loans and mortgage-related securities even in periods of high market demand for mortgage assets; | |
• | our expectation that private-label issuers of mortgage-related securities will continue to provide significant competition for our Single-Family and HCD businesses; | |
• | our belief that major elements of the restatement, including our comprehensive review of our accounting policies and practices, will contribute to a more expeditious completion of financial statements for the years ended December 31, 2005 and 2006; | |
• | our belief that the estimated fair value of our derivatives may fluctuate substantially from period to period because of changes in interest rates, expected interest rate volatility and our derivative activity; | |
• | our expectation that, based on the composition of our derivatives, we generally expect to report decreases in the aggregate fair value of our derivatives as interest rates decrease; | |
• | our expectation that, as a result of the variety of ways in which we record financial instruments in our consolidated financial statements, our earnings will vary, perhaps substantially, from period to period and result in volatility in our stockholders’ equity and regulatory capital; |
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• | our expectation that we will experience high levels of period to period volatility in our financial results as part of our normal business activities, primarily due to changes in market conditions that result in periodic fluctuations in the estimated fair value of our derivatives; | |
• | our expectation of a reduction in our net interest income and net interest yield in 2005 and 2006, due to the decrease in the volume of our interest-earning assets as well as in the spread between the average yield on these assets and our borrowing costs since year-end 2004; | |
• | our expectation that unrealized gains and losses on trading securities will fluctuate each period with changes in volumes, interest rates and market prices; | |
• | our expectation that tax credits and net operating losses resulting from our investments in LIHTC partnerships will grow in the future, which is likely to reduce our effective tax rate, and that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the entire tax benefit; | |
• | our belief that the guaranty fee income generated from future business activity will largely replace any guaranty fee income lost as a result of mortgage prepayments; | |
• | our expectation that loans that permit a borrower to defer principal or interest payments, such as negative-amortizing and interest-only loans, will default more often than traditional mortgage loans; | |
• | our belief that our short-term and long-term funding needs and uses of cash in 2007 will remain generally consistent with current needs and uses, and that our sources of liquidity will remain adequate to meet both our short-term and long-term funding needs in 2007; | |
• | our expectation that, over the long term, our funding needs and sources of liquidity will remain relatively consistent with current needs and sources; | |
• | our intent to consider an increase in our issuance of debt in future years, if we decide to increase our purchase of mortgage assets following the modification or expiration of the current limitation on the size of our mortgage portfolio; | |
• | our expectation that the aggregate estimated fair value of our derivatives will decline and result in derivative losses if long-term interest rates decline; | |
• | our expectation that the outcome of the current FASB assessment of what activities a QSPE may perform might affect the entities we consolidate in future periods; | |
• | our estimate that we will complete testing of most of our newly implemented internal controls and remediate most of our remaining material weaknesses in connection with the filing of our Annual Report onForm 10-K for the year ended December 31, 2006, which we will not file on a timely basis; | |
• | our expectation that the continued downturn in the manufactured housing sector will result in the recognition of additional impairment on our investments in manufactured housing securities; | |
• | our expectation that there will not be any change in our ability to borrow funds through the issuance of debt securities in the capital markets in the foreseeable future; | |
• | our expectation that our internal control environment will continue to be modified and enhanced in order to enable us to file periodic reports with the SEC on a current basis in the future; | |
• | our intention to continue to make significant adjustments to our mortgage loan sourcing and purchase strategies in an effort to meet HUD’s increased housing goals and subgoals; | |
• | our expectation that the Compensation Committee and the Board will review the performance shares program and determine the appropriate approach for settling our obligations with respect to the existing unpaid performance share cycles; | |
• | our intent that, in the event that we were required to make payments under Fannie Mae MBS guaranties, we would pursue recovery of these payments by exercising our rights to the collateral backing the underlying loans or through available credit enhancements (which includes all recourse with third parties and mortgage insurance); |
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• | our expectation that we will experience periodic fluctuations in the estimated fair value of our net assets due to changes in market conditions, including changes in interest rates, changes in relative spreads between our mortgage assets and debt, and changes in implied volatility; | |
• | our expectation that changes in implied volatility, mortgage OAS and debt OAS are the market conditions that will have the most significant impact on the fair value of our net assets; | |
• | our expectation that, based on market conditions and the composition of our consolidated balance sheets in 2005 and 2006, we will not experience the same level of increase in the estimated fair value of our net assets in 2005 and 2006 that we experienced in 2004; | |
• | our expectation that we will continue to incur significant administrative expenses in connection with complying with our remediation obligations, which will reduce our earnings for the years ended December 31, 2005 and 2006; | |
• | our estimate that, for 2006, our restatement and related regulatory costs will total approximately $850 million and costs attributable to or associated with the preparation of our consolidated financial statements and periodic SEC financial reports for periods subsequent to 2004 will total over $200 million; | |
• | our expectation that the costs associated with preparation of our post-2004 financial statements and periodic SEC reports will continue to have a substantial impact on administrative expenses until we are current in filing our periodic financial reports with the SEC; | |
• | our belief that our administrative expenses for 2007 will be comparable to those for 2006; | |
• | our expectation that the reduction in the size of our mortgage portfolio beginning in 2005 will contribute to significantly reduced net interest income for the years ended December 31, 2005 and 2006, compared to the years ended December 31, 2004 and 2003; | |
• | our expectation that we will report significantly lower losses from our risk management derivatives in 2005 and 2006, relative to the losses reported in 2004; | |
• | our belief that we will continue to work on improving our internal controls and procedures relating to the management of operational risk; and | |
• | descriptions of assumptions underlying or relating to any of the foregoing. |
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Item 1A. | Risk Factors |
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• | our corporate and regulatory structure, including our status as a GSE; | |
• | legislative or regulatory actions relating to our business, including any actions that would affect our GSE status; | |
• | rating agency actions relating to our credit ratings; | |
• | our financial results and changes in our financial condition; | |
• | significant events relating to our business or industry; | |
• | the public’s perception of the risks to and financial prospects of our business or industry; | |
• | the preferences of debt investors; | |
• | the breadth of our investor base; | |
• | prevailing conditions in the capital markets; | |
• | interest rate fluctuations; and | |
• | general economic conditions in the United States and abroad. |
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• | our authorized and permissible activities; | |
• | the potential level of our required capital; | |
• | the size and composition of our mortgage investment portfolio (a potential limitation in the House bill and a specific limitation in the Senate bill); | |
• | the levels of affordable housing goals; and | |
• | the process by which any new activities and programs would be approved and the extent of regulatory oversight. |
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• | estimating the fair value of financial instruments; | |
• | amortizing cost basis adjustments on mortgage loans and mortgage-related securities held in our portfolio and underlying outstanding Fannie Mae MBS using the effective interest method; | |
• | determining our allowance for loan losses and reserve for guaranty losses; and | |
• | determining whether an entity in which we have an ownership interest is a variable interest entity and whether we are the primary beneficiary of that variable interest entity and therefore must consolidate the entity. |
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• | fluctuations in the global debt and equity capital markets, including sudden and unexpected changes in short-term or long-term interest rates, could decrease the fair value of our mortgage assets, derivatives positions and other investments, negatively affect our ability to issue debt at attractive rates, and reduce our net interest income; and | |
• | an economic downturn or rising unemployment in the United States could decrease homeowner demand for mortgage loans and increase the number of homeowners who become delinquent or default on their mortgage loans. An increase in delinquencies or defaults would likely result in a higher level of credit losses, which would adversely affect our earnings. Also, decreased homeowner demand for mortgage loans could reduce our guaranty fee income, net interest income and the fair value of our mortgage assets. An economic downturn could also increase the risk that our counterparties will default on their obligations to us, increasing our liabilities and reducing our earnings. |
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Item 1B. | Unresolved Staff Comments |
Item 2. | Properties |
Item 3. | Legal Proceedings |
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Item 4. | Submission of Matters to a Vote of Security Holders |
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Quarter | High | Low | Dividend | |||||||||
2003 | ||||||||||||
First Quarter | $ | 70.40 | $ | 58.40 | $ | 0.39 | ||||||
Second Quarter | 75.84 | 65.30 | 0.39 | |||||||||
Third Quarter | 72.07 | 60.11 | 0.45 | |||||||||
Fourth Quarter | 75.95 | 68.47 | 0.45 | |||||||||
2004 | ||||||||||||
First Quarter | $ | 80.82 | $ | 70.75 | $ | 0.52 | ||||||
Second Quarter | 75.47 | 65.89 | 0.52 | |||||||||
Third Quarter | 77.80 | 63.05 | 0.52 | |||||||||
Fourth Quarter | 73.81 | 62.95 | 0.52 | |||||||||
2005 | ||||||||||||
First Quarter | $ | 71.70 | $ | 53.72 | $ | 0.26 | ||||||
Second Quarter | 61.66 | 49.75 | 0.26 | |||||||||
Third Quarter | 60.21 | 41.34 | 0.26 | |||||||||
Fourth Quarter | 50.80 | 41.41 | 0.26 | |||||||||
2006 | ||||||||||||
First Quarter | $ | 58.60 | $ | 48.41 | $ | 0.26 | ||||||
Second Quarter | 54.53 | 46.17 | 0.26 | |||||||||
Third Quarter | 56.31 | 46.30 | 0.26 |
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Maximum Number | ||||||||||||||||
Total Number of | of Shares that | |||||||||||||||
Total Number | Average | Shares Purchased | May Yet be | |||||||||||||
of Shares | Price Paid | as Part of Publicly | Purchased Under | |||||||||||||
Purchased(1) | per Share | Announced Program(2) | the Program(3) | |||||||||||||
(Shares in thousands) | ||||||||||||||||
2004 | ||||||||||||||||
January | 51 | $ | 74.49 | — | 70,433 | |||||||||||
February | 843 | 77.56 | 840 | 69,798 | ||||||||||||
March | 3,273 | 75.52 | 3,270 | 67,246 | ||||||||||||
April | 1,486 | 72.78 | 1,485 | 67,072 | ||||||||||||
May | 976 | 68.48 | 970 | 66,969 | ||||||||||||
June | 353 | 67.43 | 350 | 66,725 | ||||||||||||
July | 185 | 70.33 | 185 | 66,572 | ||||||||||||
August | 1 | 71.49 | — | 66,390 | ||||||||||||
September | 1 | 75.33 | — | 65,540 | ||||||||||||
October | 0 | 68.74 | — | 65,025 | ||||||||||||
November | 35 | 69.62 | — | 64,890 | ||||||||||||
December | 1 | 70.48 | — | 64,434 | ||||||||||||
Total | 7,205 | $ | 73.67 | 7,100 | 64,434 | |||||||||||
2005 | ||||||||||||||||
January | 107 | $ | 65.60 | — | 63,503 | |||||||||||
February | 21 | 57.86 | — | 63,234 | ||||||||||||
March | 3 | 57.17 | — | 63,957 | ||||||||||||
April | 3 | 55.02 | — | 63,723 | ||||||||||||
May | 11 | 57.24 | — | 63,510 | ||||||||||||
June | 9 | 58.79 | — | 63,359 | ||||||||||||
July | 5 | 58.86 | — | 63,070 | ||||||||||||
August | 4 | 52.44 | — | 62,951 | ||||||||||||
September | 15 | 46.70 | — | 62,755 | ||||||||||||
October | 37 | 45.42 | — | 62,525 | ||||||||||||
November | 259 | 47.35 | — | 62,123 | ||||||||||||
December | 18 | 47.67 | — | 61,364 | ||||||||||||
Total | 492 | $ | 52.29 | — | 61,364 | |||||||||||
2006 | ||||||||||||||||
January | 196 | $ | 53.23 | — | 60,596 | |||||||||||
February | 58 | 58.10 | — | 60,112 | ||||||||||||
March | 61 | 54.04 | — | 60,269 | ||||||||||||
April | 10 | 52.60 | — | 61,267 | ||||||||||||
May | 13 | 50.38 | 4 | 61,160 | ||||||||||||
June | 13 | 48.11 | 4 | 61,046 | ||||||||||||
July | 11 | 48.55 | — | 60,983 | ||||||||||||
August | 52 | 49.29 | 23 | 60,900 | ||||||||||||
September | 19 | 53.91 | 7 | 60,669 | ||||||||||||
Total | 433 | $ | 53.20 | 38 | 60,669 | |||||||||||
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(1) | In addition to shares repurchased as part of the publicly announced programs described in footnote 2 below, these shares consist of: (a) 563,229 shares of common stock reacquired from employees to pay an aggregate of approximately $33.1 million in withholding taxes due upon the vesting of restricted stock; (b) 92,590 shares of common stock reacquired from employees to pay an aggregate of approximately $4.8 million in withholding taxes due upon the exercise of stock options; (c) 321,405 shares of common stock repurchased from employees and members of our Board of Directors to pay an aggregate exercise price of approximately $15.8 million for stock options; and (d) 14,430 shares of common stock repurchased from employees in a limited number of instances relating to employees’ financial hardship. | |
(2) | Consists of (a) 7,100,200 shares of common stock purchased pursuant to our publicly announced share repurchase program in open market transactions effected in compliance with SECRule 10b-18, and (b) 38,217 shares of common stock repurchased from employees pursuant to our publicly announced employee stock repurchase program. On January 21, 2003, we publicly announced that the Board of Directors had approved a share repurchase program (the “General Repurchase Authority”) under which we could purchase in open market transactions the sum of (a) up to 5% of the shares of common stock outstanding as of December 31, 2002 (49.4 million shares) and (b) additional shares to offset stock issued or expected to be issued under our employee benefit plans. On May 9, 2006, we announced that the Board of Directors had authorized a stock repurchase program (the “Employee Stock Repurchase Program”) under which we may repurchase up to $100 million of Fannie Mae shares from non-officer employees. Neither the General Repurchase Authority nor the Employee Stock Repurchase Program has a specified expiration date. | |
(3) | Consists of the total number of shares that may yet be purchased under the General Repurchase Authority as of the end of the month, including the number of shares that may be repurchased to offset stock that may be issued pursuant to the Stock Compensation Plan of 1993 and the Stock Compensation Plan of 2003. Repurchased shares are first offset against any issuances of stock under our employee benefit plans. To the extent that we repurchase more shares than have been issued under our plans in a given month, the excess number of shares is deducted from the 49.4 million shares approved for repurchase under the General Repurchase Authority. Because of new stock issuances and expected issuances pursuant to new grants under our employee benefit plans, the number of shares that may be purchased under the General Repurchase Authority fluctuates from month to month. No shares were repurchased from August 2004 through September 30, 2006 in the open market pursuant to the General Repurchase Authority. See “Notes to Consolidated Financial Statements—Note 13, Stock-Based Compensation Plans,” for information about shares issued, shares expected to be issued, and shares remaining available for grant under our employee benefit plans. Excludes the remaining number of shares authorized to be repurchased under the Employee Stock Repurchase Program. Assuming a price per share of $55.93, the average of the high and low stock prices of Fannie Mae common stock on September 30, 2006, approximately 1.8 million shares may yet be purchased under the Employee Stock Repurchase Program. |
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Item 6. | Selected Financial Data |
For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
(Dollars in millions, except | ||||||||||||
per share amounts) | ||||||||||||
Income Statement Data: | ||||||||||||
Net interest income | $ | 18,081 | $ | 19,477 | $ | 18,426 | ||||||
Guaranty fee income | 3,604 | 3,281 | 2,516 | |||||||||
Derivative fair value losses, net | (12,256 | ) | (6,289 | ) | (12,919 | ) | ||||||
Other income (loss)(1) | (812 | ) | (4,220 | ) | (1,735 | ) | ||||||
Income before extraordinary gains (losses) and cumulative effect of change in accounting principle | 4,975 | 7,852 | 3,914 | |||||||||
Extraordinary gains (losses), net of tax effect | (8 | ) | 195 | — | ||||||||
Cumulative effect of change in accounting principle, net of tax effect | — | 34 | — | |||||||||
Net income | 4,967 | 8,081 | 3,914 | |||||||||
Preferred stock dividends and issuance costs at redemption | (165 | ) | (150 | ) | (111 | ) | ||||||
Net income available to common stockholders | $ | 4,802 | $ | 7,931 | $ | 3,803 | ||||||
Per Common Share Data: | ||||||||||||
Earnings per share before extraordinary gains (losses) and cumulative effect of change in accounting principle | ||||||||||||
Basic | $ | 4.96 | $ | 7.88 | $ | 3.83 | ||||||
Diluted | 4.94 | 7.85 | 3.81 | |||||||||
Earnings per share after extraordinary gains (losses) and cumulative effect of change in accounting principle | ||||||||||||
Basic | $ | 4.95 | $ | 8.12 | $ | 3.83 | ||||||
Diluted | 4.94 | 8.08 | 3.81 | |||||||||
Weighted-average common shares outstanding: | ||||||||||||
Basic | 970 | 977 | 992 | |||||||||
Diluted | 973 | 981 | 998 | |||||||||
Cash dividends declared per share | $ | 2.08 | $ | 1.68 | $ | 1.32 | ||||||
Business Activity Data: | ||||||||||||
Fannie Mae MBS issues(2) | $ | 552,482 | $ | 1,220,066 | $ | 743,630 | ||||||
Mortgage portfolio purchases(3) | 258,478 | 525,759 | 353,193 | |||||||||
Business volume | $ | 810,960 | $ | 1,745,825 | $ | 1,096,823 | ||||||
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As of December 31, | ||||||||||||||||
2004 | 2003 | 2002 | 2001 | |||||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||||||
(Dollars in millions) | ||||||||||||||||
Balance Sheet Data: | ||||||||||||||||
Investments in securities: | ||||||||||||||||
Trading(4) | $ | 35,287 | $ | 43,798 | $ | 14,909 | $ | (45 | ) | |||||||
Available-for-sale | 532,095 | 523,272 | 520,176 | 503,381 | ||||||||||||
Mortgage loans: | ||||||||||||||||
Loans held for sale | 11,721 | 13,596 | 20,192 | 11,327 | ||||||||||||
Loans held for investment, net of allowance | 389,651 | 385,465 | 304,178 | 267,510 | ||||||||||||
Total assets | 1,020,934 | 1,022,275 | 904,739 | 814,561 | ||||||||||||
Short-term debt | 320,280 | 343,662 | 293,538 | 280,848 | ||||||||||||
Long-term debt | 632,831 | 617,618 | 547,755 | 484,182 | ||||||||||||
Total liabilities | 981,956 | 990,002 | 872,840 | 791,305 | ||||||||||||
Preferred stock | 9,108 | 4,108 | 2,678 | 2,303 | ||||||||||||
Total stockholders’ equity | 38,902 | 32,268 | 31,899 | 23,256 | ||||||||||||
Regulatory Capital Data: | ||||||||||||||||
Core capital(5) | $ | 34,514 | $ | 26,953 | $ | 20,431 | $ | 18,234 | ||||||||
Total capital(6) | 35,196 | 27,487 | 20,831 | 18,500 | ||||||||||||
Book of Business Data: | ||||||||||||||||
Mortgage portfolio(7) | $ | 917,209 | $ | 908,868 | $ | 799,779 | $ | 715,953 | ||||||||
Fannie Mae MBS held by third parties(8) | 1,408,047 | 1,300,520 | 1,040,439 | 878,039 | ||||||||||||
Book of business | $ | 2,325,256 | $ | 2,209,388 | $ | 1,840,218 | $ | 1,593,992 | ||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
Ratios: | ||||||||||||
Return on assets ratio(9)* | 0.47 | % | 0.82 | % | 0.44 | % | ||||||
Return on equity ratio(10)* | 16.6 | 27.6 | 15.2 | |||||||||
Equity to assets ratio(11)* | 3.5 | 3.3 | 3.2 | |||||||||
Dividend payout ratio(12)* | 42.1 | 20.8 | 34.5 | |||||||||
Average effective guaranty fee rate (in basis points)(13)* | 20.8 | bp | 21.0 | bp | 19.3 | bp | ||||||
Credit loss ratio (in basis points)(14)* | 1.0 | bp | 0.9 | bp | 0.8 | bp | ||||||
Earnings to combined fixed charges and preferred stock dividends and issuance costs at redemption ratio(15) | 1.22:1 | 1.36:1 | 1.16:1 |
(1) | Includes investment losses, net; debt extinguishment losses, net; loss from partnership investments; and fee and other income. | |
(2) | Unpaid principal balance of Fannie Mae MBS acquired by third-party investors during the reporting period. | |
(3) | Unpaid principal balance of mortgage loans and mortgage-related securities we purchased for our portfolio during the reporting period. | |
(4) | Balance as of December 31, 2001 primarily represents the fair value of forward purchases of TBA mortgage securities that were in a loss position. | |
(5) | The sum of (a) the stated value of outstanding common stock (common stock less treasury stock); (b) the stated value of outstanding non-cumulative perpetual preferred stock;(c) paid-in-capital; and (d) retained earnings. Core capital excludes accumulated other comprehensive income. | |
(6) | The sum of (a) core capital and (b) the total allowance for loan losses and reserve for guaranty losses, less (c) the specific loss allowance (that is, the allowance required on individually-impaired loans). | |
(7) | Unpaid principal balance of mortgage loans and mortgage-related securities held in our portfolio. |
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(8) | Unpaid principal balance of Fannie Mae MBS held by third-party investors. The principal balance of resecuritized Fannie Mae MBS is included only once. | |
(9) | Net income available to common stockholders divided by average total assets. | |
(10) | Net income available to common stockholders divided by average outstanding common equity. | |
(11) | Average stockholders’ equity divided by average total assets. | |
(12) | Common dividend payments divided by net income available to common stockholders. | |
(13) | Guaranty fee income as a percentage of average outstanding Fannie Mae MBS and other guaranties. | |
(14) | Charge-offs, net of recoveries and foreclosed property expense (income), as a percentage of the average mortgage credit book of business. | |
(15) | “Earnings” includes reported income before extraordinary gains (losses), net of tax effect and cumulative effect of change in accounting principle, net of tax effect plus (a) provision for federal income taxes, minority interest in earnings of consolidated subsidiaries, loss from partnership investments, capitalized interest and total interest expense. “Combined fixed charges and preferred stock dividends and issuance costs at redemption” includes (a) fixed charges (b) preferred stock dividends and issuance costs on redemptions of preferred stock, defined as pretax earnings required to pay dividends on outstanding preferred stock using our effective income tax rate for the relevant periods. Fixed charges represent total interest expense and capitalized interest. |
* | Average balances for purposes of the ratio calculations are based on beginning and end of year balances. |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | Executive Summary | |
• | Restatement | |
• | Critical Accounting Policies and Estimates | |
• | Consolidated Results of Operations | |
• | Business Segment Results | |
• | Supplemental Non-GAAP Information—Fair Value Balance Sheet | |
• | Risk Management | |
• | Liquidity and Capital Management | |
• | Off-Balance Sheet Arrangements | |
• | Impact of Future Adoption of Accounting Pronouncements | |
• | 2004 Quarterly Review |
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• | We have made significant changes to our Board of Directors, including the appointment of a non-executive Chairman of the Board, the creation of a Risk Policy and Capital Committee of the Board, the creation of a Technology and Operations Committee of the Board, and the re-designation of a new Compliance Committee of the Board composed entirely of independent directors. We have also added six new Board members with substantial experience and knowledge related to business operations, accounting and finance since our receipt of OFHEO’s interim report in September 2004, including a new Chairman of the Audit Committee and three other new members of the Audit Committee. | |
• | We have made significant changes to our executive management team, including the appointment of a new Chief Executive Officer and a new Chief Financial Officer. Over 35% of our senior officers, including our Chief Financial Officer, Controller, Chief Audit Executive, Chief Risk Officer, General Counsel and all senior officers in our Controller’s and Accounting Policy functions, joined the company after December 2004. | |
• | We have initiated a comprehensive plan to transform our corporate culture into one focused on service, open and honest engagement, accountability and effective management practices. | |
• | We have modified our compensation practices to include non-financial metrics relating to our controls, culture and mission goals. | |
• | We have established an enterprise-wide risk oversight organization to oversee the management of credit risk, market risk and operational risk. We hired a new Chief Risk Officer to lead the build-out and responsibilities of this organization. In addition, we have implemented a new organizational risk structure that includes risk management personnel within each business unit. | |
• | We appointed a new Chief Audit Executive from outside the company, reporting directly to the Audit Committee of the Board of Directors. We have completed a comprehensive review of Internal Audit’s organizational design and audit processes. We have filled the key management positions of Internal Audit with highly credentialed and experienced audit professionals, and we continue to enhance staffing in this area. | |
• | We have appointed a new Chief Compliance Officer and substantially enhanced the staffing and scope of our compliance function. |
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• | Business volume down 54% from record level of $1.7 trillion in 2003 | ||
• | 5% growth in our book of business | ||
• | 7% decrease in net interest income to $18.1 billion | ||
• | 25 basis point decrease in net interest yield to 1.87% | ||
• | 10% increase in guaranty fee income to $3.6 billion | ||
• | Derivative fair value losses of $12.3 billion, compared with derivative fair value losses of $6.3 billion in 2003 | ||
• | Losses of $152 million on debt extinguishments, compared with losses of $2.7 billion in 2003 |
• | Business volume up 59% to record level of $1.7 trillion | ||
• | 20% growth in our book of business | ||
• | 6% increase in net interest income to $19.5 billion | ||
• | 12 basis point decrease in net interest yield to 2.12% | ||
• | 30% increase in guaranty fee income to $3.3 billion | ||
• | Derivative fair value losses of $6.3 billion, compared with derivative fair value losses of $12.9 billion in 2002 | ||
• | Losses of $2.7 billion on debt extinguishments, compared with losses of $814 million in 2002 |
• | We record derivatives, mortgage commitments and trading securities at fair value in our consolidated balance sheets and recognize changes in the fair value of those financial instruments in our net income. | |
• | We recordavailable-for-sale securities, retained interests and guaranty fee buy-ups at fair value in our consolidated balance sheets and recognize changes in the fair value of those financial instruments in accumulated other comprehensive income (“AOCI”), a component of stockholders’ equity. | |
• | We record held for sale mortgage loans at the lower of cost or market (“LOCOM”) in our consolidated balance sheets and recognize changes in the fair value (not to exceed the cost basis of these loans) in our net income. | |
• | At the inception of a guaranty contract, we estimate the fair value of the guaranty asset and guaranty obligation and record each of those amounts in our consolidated balance sheet. In each subsequent period, we reduce the guaranty asset for guaranty fees received and any impairment. We amortize the guaranty |
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obligation in proportion to the reduction of the guaranty asset and recognize the amortization as guaranty fee income in our net income. We do not record subsequent changes in the fair value of the guaranty asset or guaranty obligation in our consolidated financial statements. The guaranty assets are, however, reviewed for impairment. |
• | We record debt instruments at amortized cost and recognize interest expense in our net interest income. |
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• | a net decrease in retained earnings of $6.3 billion as of June 30, 2004; | |
• | a net increase in stockholders’ equity of $4.1 billion as of June 30, 2004; and | |
• | a net decrease in regulatory core capital of $7.5 billion as of December 31, 2003. |
• | a $7.0 billion net decrease in earnings for periods prior to January 1, 2002 (as reflected in beginning retained earnings as of January 1, 2002); | |
• | a $705 million net decrease in earnings for the year ended December 31, 2002; | |
• | a $176 million net increase in earnings for the year ended December 31, 2003; and | |
• | a $1.2 billion net increase in earnings for the six months ended June 30, 2004. |
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Restatement Adjustments for: | ||||||||||||||||||||||||
Cumulative | ||||||||||||||||||||||||
Periods | Adjustments | Six Months | Cumulative | |||||||||||||||||||||
Prior to | Year Ended | Year Ended | as of | Ended | Adjustments as | |||||||||||||||||||
January 1, | December 31, | December 31, | December 31, | June 30, | of June 30, | |||||||||||||||||||
2002 | 2002 | 2003 | 2003 | 2004 | 2004 | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Retained earnings, as previously reported | $ | 26,175 | $ | 29,385 | $ | 35,496 | $ | 37,414 | ||||||||||||||||
Restatement adjustments for: | ||||||||||||||||||||||||
Debt and derivatives | (10,622 | ) | (5,877 | ) | 4,356 | $ | (12,143 | ) | $ | 3,036 | (9,107 | ) | ||||||||||||
Commitments | 413 | 5,387 | (1,826 | ) | 3,974 | (546 | ) | 3,428 | ||||||||||||||||
Investments in securities | (660 | ) | (715 | ) | (332 | ) | (1,707 | ) | (142 | ) | (1,849 | ) | ||||||||||||
MBS trust consolidation and sale accounting | 119 | (59 | ) | (226 | ) | (166 | ) | (185 | ) | (351 | ) | |||||||||||||
Financial guaranties and master servicing | (206 | ) | 178 | 175 | 147 | (143 | ) | 4 | ||||||||||||||||
Amortization of cost basis adjustments | 154 | 135 | (1,348 | ) | (1,059 | ) | (70 | ) | (1,129 | ) | ||||||||||||||
Other adjustments | 296 | (343 | ) | (926 | ) | (973 | ) | (320 | ) | (1,293 | ) | |||||||||||||
Total impact of restatement adjustments before federal income taxes, extraordinary gains (losses) and cumulative effect of change in accounting principle | (10,506 | ) | (1,294 | ) | (127 | ) | (11,927 | ) | 1,630 | (10,297 | ) | |||||||||||||
(Benefit) provision for federal income taxes | (3,465 | ) | (589 | ) | (259 | ) | (4,313 | ) | 397 | (3,916 | ) | |||||||||||||
Extraordinary gains (losses), net of tax effect | — | — | 195 | 195 | 7 | 202 | ||||||||||||||||||
Cumulative effect of a change in accounting principle, net of tax effect | — | — | (151 | ) | (151 | ) | — | (151 | ) | |||||||||||||||
Impact of current period restatement adjustments, except where cumulative | (7,041 | ) | (705 | ) | 176 | $ | (7,570 | ) | $ | 1,240 | (6,330 | ) | ||||||||||||
Impact of prior period restatement and other stockholders’ equity adjustments(1) | (7,042 | ) | (7,749 | ) | (5 | ) | ||||||||||||||||||
Retained earnings, as restated | $ | 19,134 | $ | 21,638 | $ | 27,923 | $ | 31,079 | ||||||||||||||||
(1) | Includes the impact of stock-based compensation dividend adjustments. |
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• | Accounting for partnership investments. We incorrectly accounted for a portion of our LIHTC and other partnership investments using the effective yield method instead of using the equity method of accounting. The correction of this error resulted in changes in the carrying amount of these investments in the consolidated balance sheets, the recognition of our obligations to fund the partnerships, and changes in the income recognition on these investments in the consolidated statements of income. Additionally, we failed to consolidate a portion of the LIHTC and other partnership investments in which we were deemed to be the primary beneficiary pursuant to FIN 46R, which resulted in the reversal of any previously recorded investment and recognition of the underlying assets and liabilities of the entity in the consolidated balance sheets and, at the same time, we incorrectly consolidated some partnership investments which had the reverse effect. We also made errors in the capitalization of interest expense, measurement of impairment and the recognition of our obligations to fund our partnership investments. The correction of these errors resulted in changes in the amount of interest expense and impairment recognized in the consolidated statements of income. Lastly, we made errors in the computation of net operating losses and tax credits allocated to us from these partnerships. The correction of these errors resulted in changes in “Deferred tax assets” in the consolidated balance sheets and changes in the “Provision for federal income taxes” in the consolidated statements of income. These restatement adjustments resulted in a cumulative pre-tax decrease in retained earnings of $603 million, an increase of $791 million in total assets and an increase of $878 million in total liabilities as of December 31, 2003. In addition to the tax provision recorded for the partnership investments restatement adjustments, we also recorded a decrease in federal income tax expense of $138 million for the year ended December 31, 2003 due to changes in the recognition and classification of related tax credits and net operating losses. | |
• | Classification of loans held for sale. We incorrectly classified loans held for securitization at a future date as HFI loans rather than HFS loans pursuant to SFAS No. 65,Accounting for Certain Mortgage Banking Activities. Accordingly, we did not record LOCOM adjustments on these loans. To correct this error, we recorded an adjustment to reclassify such loans from HFI to HFS and recorded an associated LOCOM adjustment. These restatement adjustments resulted in a cumulative pre-tax decrease in retained earnings of $386 million as of December 31, 2003. | |
• | Provision for credit losses. We incorrectly recorded the “Provision for credit losses” due to errors associated with the “Allowance for loan losses,” “Reserve for guaranty losses,” as well as REO and troubled debt restructurings (“TDRs”’). |
— | We made errors in developing our estimates of the “Allowance for loan losses” and the “Reserve for guaranty losses,” which resulted in an understatement of the provision for credit losses. These errors were primarily related to the use of inappropriate data in the calculation of the allowance and reserve, such as incorrect loan populations, inaccurate default statistics and inaccurate loss severity in the event that loans default. We also made judgmental adjustments to the calculated allowance without adequate support and incorrectly included an estimate of credit enhancement collections in the estimate of the “Allowance for loan losses.” Estimates of recoveries from credit enhancements that were not entered into contemporaneously or in contemplation of a guaranty or loan purchase should not have been included in the overall estimate of the allowance or the reserve. As a result of misclassifying certain loans as HFI, we incorrectly recorded an “Allowance for loan losses” on these loans. Finally, we did not properly allocate the reserve between the “Allowance for loan losses” and the “Reserve for guaranty losses.” To correct these errors, we recalculated the allowance and reserve with updated information and supportable data, reviewed and documented any judgmental adjustments and appropriately applied estimates of recoveries from credit enhancements to the loan population. | |
— | We made errors in calculating loan charge-off amounts. These errors were related to REO and foreclosed property expense, including making inappropriate determinations of the initial cost basis of REO assets at foreclosure, as well as not expensing costs related to foreclosure activities in the proper periods. To correct these errors, we reviewed REO and foreclosed property expense to determine and record the appropriate cost basis and timing of charge-offs and expense recognition. We also |
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incorrectly recognized insurance proceeds in excess of estimated charge-off at foreclosure and fair value gains above the recorded investment of REO properties as recoveries to the allowance and the reserve. To correct this error, we recalculated the allowance and reserve. |
— | We historically did not recognize modifications that granted concessions to borrowers as TDRs pursuant to SFAS No. 114,Accounting by Creditors for Impairment of a Loan (an amendment of FASB Statement No. 5 and 15) (“SFAS 114”). To correct this error, we recognized these modifications as TDRs and recorded an adjustment to the “Allowance for loan losses” and the “Provision for credit losses” in the consolidated balance sheets and consolidated statements of income, respectively. |
• | Early funding. We offer early funding options to lenders that allow them to receive cash payments for mortgage loans that will be securitized into Fannie Mae MBS at a future date. A corresponding forward commitment to sell the security that will be backed by the mortgage loans is required to be delivered with the mortgage loans and is executed on the settlement date of the commitment. We incorrectly recorded these transactions as HFS loans prior to the actual creation of the Fannie Mae MBS when we were the intended purchaser of the MBS. The impact of correcting this error was to remove any previous HFS loans from these transactions and record the transactions as “Advances to lenders,” carried at amortized cost, in the consolidated balance sheets, resulting in a decrease of $4.7 billion in “Mortgage loans” with a corresponding increase in “Advances to lenders” as of December 31, 2003. | |
• | Collateral associated with derivatives contracts. We did not record cash collateral we received associated with some derivatives contracts. The impact of correcting this error was to record additional “Cash and cash equivalents” of $2.3 billion and “Restricted cash” of $1.1 billion, and a corresponding liability to our derivative counterparties in “Other liabilities” of $3.4 billion, as of December 31, 2003. |
• | Accounting for reverse mortgages. We made errors in accounting for reverse mortgages. When computing interest income on reverse mortgages we did not use the expected life of the borrower and house price expectations in the interest income calculations and did not apply the retrospective level yield method. To correct this error, we recalculated interest income for these mortgages and recorded the change in “Interest income” in the consolidated statements of income. We also incorrectly recorded loan loss reserves on these mortgages. To correct this error, we adjusted the “Allowance for loan losses” and the “Provision for credit losses” in the consolidated balance sheets and consolidated statements of income, respectively. | |
• | Accrued interest on delinquent loans. We incorrectly included a recovery rate, which was based on historic trends of loans that subsequently changed to current payment status, in calculating accrued interest on delinquent loans. The effect of this error was to record interest income on loans that should have been on nonaccrual status. The correction of this error resulted in the reversal of interest income recorded in the periods when loans should have been on nonaccrual status. | |
• | Amortization of prepaid mortgage insurance. We amortized prepaid mortgage insurance over a period that is not representative of the period in which we received the benefits of the mortgage insurance. To correct this error, we recalculated amortization of this mortgage insurance and recorded the difference in “Other expenses” in the consolidated statements of income. | |
• | Computation of interest income. We incorrectly calculated interest income on certain investments. The calculations utilized a convention that was based on the average number of days of interest in a month regardless of the actual number of days in the month. We corrected the calculation of interest using the actual number of days in the month and adjusted the timing of interest income recognition. |
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• | Mortgage insurance contract. We entered into a mortgage insurance contract that did not transfer sufficient underlying risk of economic loss to the insurer and therefore did not qualify as mortgage insurance for accounting purposes. We incorrectly amortized the premiums paid as an expense. To correct this error, we recorded premiums paid on the policy as a deposit, reducing such deposit as recoveries from the policy were received. | |
• | Stock-based compensation. We made errors in the computation and classification of stock-based compensation, including the misclassification of some awards as non-compensatory when they were compensatory. The impact of correcting these errors resulted in the recognition of additional “Salaries and employee benefits expense” in the consolidated statements of income, a decrease in “Other liabilities” and an increase in “Additional paid-in capital” in the consolidated balance sheets. None of these errors related to awards that were not properly authorized and priced. |
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Restatement Adjustments for: | ||||||||||||||||||||||||||||||||||||||||
MBS Trust | Financial | Amortization | ||||||||||||||||||||||||||||||||||||||
As | Consolidation | Guaranties | of Cost | Total | ||||||||||||||||||||||||||||||||||||
Previously | Debt and | Investments | and Sale | and Master | Basis | Other | Restatement | As | ||||||||||||||||||||||||||||||||
Reported(a) | Derivatives | Commitments | in Securities | Accounting | Servicing | Adjustments | Adjustments | Adjustments | Restated | |||||||||||||||||||||||||||||||
�� | (Dollars in millions) | |||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||
Investments in securities | $ | 712,763 | $ | — | $ | 3,479 | $ | 5,458 | $ | (153,971 | ) | $ | — | $ | (401 | ) | $ | (258 | ) | $ | (145,693 | )(b) | $ | 567,070 | ||||||||||||||||
Mortgage loans | 240,844 | — | 874 | 115 | 162,780 | — | (519 | ) | (5,033 | ) | 158,217 | (c) | 399,061 | |||||||||||||||||||||||||||
Derivative assets at fair value | 8,191 | (1,014 | ) | 8 | — | — | — | — | 33 | (973 | )(d) | 7,218 | ||||||||||||||||||||||||||||
Guaranty assets | 5,666 | — | — | — | (200 | ) | (1,184 | ) | — | — | (1,384 | )(e) | 4,282 | |||||||||||||||||||||||||||
Deferred tax assets | 9,142 | (2,221 | ) | (2,613 | ) | (646 | ) | (175 | ) | (106 | ) | 332 | 369 | (5,060 | )(f) | 4,082 | ||||||||||||||||||||||||
Other assets | 32,963 | (1,760 | ) | 3,097 | (3,685 | ) | 487 | (411 | ) | 10 | 9,861 | 7,599 | (g) | 40,562 | ||||||||||||||||||||||||||
Total assets | $ | 1,009,569 | $ | (4,995 | ) | $ | 4,845 | $ | 1,242 | $ | 8,921 | $ | (1,701 | ) | $ | (578 | ) | $ | 4,972 | $ | 12,706 | $ | 1,022,275 | |||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Debt | $ | 958,064 | $ | (6,748 | ) | $ | — | $ | — | $ | 9,906 | $ | — | $ | — | $ | 58 | $ | 3,216 | (h) | $ | 961,280 | ||||||||||||||||||
Derivative liabilities at fair value | 1,600 | 1,632 | (7 | ) | — | — | — | — | — | 1,625 | (d) | 3,225 | ||||||||||||||||||||||||||||
Guaranty obligations | 5,666 | — | — | — | (796 | ) | 1,531 | — | — | 735 | (i) | 6,401 | ||||||||||||||||||||||||||||
Other liabilities | 21,815 | (4,002 | ) | (1 | ) | 37 | (507 | ) | (3,442 | ) | 39 | 5,157 | (2,719 | )(j) | 19,096 | |||||||||||||||||||||||||
Total liabilities | 987,145 | (9,118 | ) | (8 | ) | 37 | 8,603 | (1,911 | ) | 39 | 5,215 | 2,857 | 990,002 | |||||||||||||||||||||||||||
Minority interests in consolidated subsidiaries | 51 | — | — | — | — | — | — | (46 | ) | (46 | ) | 5 | ||||||||||||||||||||||||||||
Stockholders’ Equity: | ||||||||||||||||||||||||||||||||||||||||
Retained earnings | 35,496 | (8,079 | ) | 2,399 | (1,106 | ) | 118 | 101 | (688 | ) | (318 | ) | (7,573 | )(k) | 27,923 | |||||||||||||||||||||||||
Accumulated other comprehensive income (loss) | (12,032 | ) | 12,202 | 2,454 | 2,311 | 200 | 109 | 71 | — | 17,347 | (l) | 5,315 | ||||||||||||||||||||||||||||
Other stockholders’ equity | (1,091 | ) | — | — | — | — | — | — | 121 | 121 | (970 | ) | ||||||||||||||||||||||||||||
Total stockholders’ equity | 22,373 | 4,123 | 4,853 | 1,205 | 318 | 210 | (617 | ) | (197 | ) | 9,895 | 32,268 | ||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,009,569 | $ | (4,995 | ) | $ | 4,845 | $ | 1,242 | $ | 8,921 | $ | (1,701 | ) | $ | (578 | ) | $ | 4,972 | $ | 12,706 | $ | 1,022,275 | |||||||||||||||||
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(a) | Certain previously reported balances have been reclassified to conform to the current condensed consolidated balance sheet presentation, as described in “Notes to Consolidated Financial Statements—Note 2, Summary of Significant Accounting Policies.” | |
(b) | Reflects the impact of MBS trust consolidation and sale accounting; the derecognition of HTM securities at amortized cost and recognition of AFS and trading securities at fair value; the reversal of the SFAS 149 transition adjustment and recognition of revised securities commitment basis adjustments; the recognition of revised amortization on securities cost basis adjustments; and the derecognition of securities related to failed dollar roll repurchase transactions that did not meet the criteria for secured borrowing accounting. | |
(c) | Reflects the impact of MBS trust consolidation and sale accounting; the reclassification of “Mortgage loans” to “Advances to lenders;” the recognition of revised mortgage loan commitment basis adjustments; the recognition of the LOCOM adjustment for loans classified as HFS; and the recognition of revised amortization on mortgage loan cost basis adjustments. | |
(d) | Reflects the reclassification of interest rate swap accruals from accrued interest and recognition of derivative fair value adjustments. | |
(e) | Reflects the impairment of guaranty assets; the reversal ofbuy-up amounts included in the basis of the guaranty assets; and the derecognition of guaranty arrangements upon consolidation. | |
(f) | Reflects the impact of restatement adjustments on deferred taxes and the correction of tax credit-related errors associated with partnership investments. | |
(g) | Reflects the reclassification of interest rate swap accruals to “Derivative assets at fair value;” the reclassification of “Advances to lenders” from “Mortgage loans;” the impairment of buy-ups; the recognition of “Restricted cash” and “Cash and cash equivalents” related to collateral received from derivatives counterparties; and the impact of cost basis transfers between error categories. | |
(h) | Reflects the reversal of previously recorded unrealized gains and losses on the hedged items associated with fair value hedges; the recognition of revised amortization of debt basis adjustments; and the recognition of short-term and long-term debt upon consolidation of MBS trusts in which we own less than 100% of the related securities. | |
(i) | Reflects the valuation adjustment related to the guaranty obligations; the reclassification of buy-downs and risk-based pricing adjustments from “Other liabilities;” and the derecognition of guaranty arrangements upon consolidation. | |
(j) | Reflects the reclassification of interest rate swap accruals to “Derivative liabilities at fair value;” the reversal of short-term debt associated with failed dollar roll repurchase transactions; the reclassification of buy-downs and risk-based pricing adjustments to “Guaranty obligations;” and the recognition of liabilities to derivative counterparties associated with restricted cash. | |
(k) | Reflects the recognition of derivative fair value adjustments to the consolidated statements of income and other income or expense related adjustments. | |
(l) | Reflects the reversal of previously recorded derivatives fair value adjustments and the recognition of unrealized gains (losses) on AFS securities andbuy-ups. |
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Restatement Adjustments for: | ||||||||||||||||||||||||||||||||||||||||
MBS Trust | Financial | Amortization | ||||||||||||||||||||||||||||||||||||||
As | Consolidation | Guaranties | of Cost | Total | ||||||||||||||||||||||||||||||||||||
Previously | Debt and | Investments | and Sale | and Master | Basis | Other | Restatement | As | ||||||||||||||||||||||||||||||||
Reported(a) | Derivatives | Commitments | in Securities | Accounting | Servicing | Adjustments | Adjustments | Adjustments | Restated | |||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||
Investments in securities | $ | 650,616 | $ | — | $ | 230 | $ | 33,278 | $ | (128,809 | ) | $ | — | $ | 558 | $ | (20,788 | ) | $ | (115,531 | )(b) | $ | 535,085 | |||||||||||||||||
Mortgage loans | 206,905 | — | 683 | (20,576 | ) | 136,097 | — | (291 | ) | 1,552 | 117,465 | (c) | 324,370 | |||||||||||||||||||||||||||
Derivative assets at fair value | 3,666 | (297 | ) | 1,554 | — | — | — | — | — | 1,257 | (d) | 4,923 | ||||||||||||||||||||||||||||
Deferred tax assets | 8,053 | (2,885 | ) | (2,035 | ) | (2,969 | ) | (309 | ) | (23 | ) | (111 | ) | 279 | (8,053 | )(e) | — | |||||||||||||||||||||||
Other assets | 18,275 | (501 | ) | 3,737 | (4,539 | ) | 674 | (864 | ) | 108 | 23,471 | 22,086 | (f) | 40,361 | ||||||||||||||||||||||||||
Total assets | $ | 887,515 | $ | (3,683 | ) | $ | 4,169 | $ | 5,194 | $ | 7,653 | $ | (887 | ) | $ | 264 | $ | 4,514 | $ | 17,224 | $ | 904,739 | ||||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Debt | $ | 841,899 | $ | (8,237 | ) | $ | — | $ | — | $ | 7,516 | $ | — | $ | — | $ | 115 | $ | (606 | )(g) | $ | 841,293 | ||||||||||||||||||
Derivative liabilities at fair value | 5,697 | 1,036 | 169 | — | — | — | — | — | 1,205 | (d) | 6,902 | |||||||||||||||||||||||||||||
Other liabilities | 23,631 | (1,840 | ) | 220 | (324 | ) | (438 | ) | (890 | ) | 58 | 4,228 | 1,014 | (h) | 24,645 | |||||||||||||||||||||||||
Total liabilities | 871,227 | (9,041 | ) | 389 | (324 | ) | 7,078 | (890 | ) | 58 | 4,343 | 1,613 | 872,840 | |||||||||||||||||||||||||||
Stockholders’ Equity: | ||||||||||||||||||||||||||||||||||||||||
Retained earnings | 29,385 | (10,909 | ) | 3,771 | (891 | ) | 39 | (18 | ) | 188 | 73 | (7,747 | )(i) | 21,638 | ||||||||||||||||||||||||||
Accumulated other comprehensive (loss) income | (11,792 | ) | 16,267 | 9 | 6,409 | 536 | 21 | 18 | — | 23,260 | (j) | 11,468 | ||||||||||||||||||||||||||||
Other stockholders’ equity | (1,305 | ) | — | — | — | — | — | — | 98 | 98 | (1,207 | ) | ||||||||||||||||||||||||||||
Total stockholders’ equity | 16,288 | 5,358 | 3,780 | 5,518 | 575 | 3 | 206 | 171 | 15,611 | 31,899 | ||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 887,515 | $ | (3,683 | ) | $ | 4,169 | $ | 5,194 | $ | 7,653 | $ | (887 | ) | $ | 264 | $ | 4,514 | $ | 17,224 | $ | 904,739 | ||||||||||||||||||
(a) | Certain previously reported balances have been reclassified to conform to the current condensed consolidated balance sheet presentation, as described in “Notes to Consolidated Financial Statements—Note 2, Summary of Significant Accounting Policies.” | |
(b) | Reflects the impact of MBS trust consolidation and sale accounting; the derecognition of HTM securities at amortized cost and recognition of AFS and trading securities at fair value, including commitments accounted for under EITF 96-11; the recognition of revised securities commitment basis adjustments; the recognition of revised amortization on securities cost basis adjustments; and the derecognition of securities related to failed dollar roll repurchase transactions that did not meet the criteria for secured borrowing accounting. | |
(c) | Reflects the impact of MBS trust consolidation and sale accounting; the reclassification of “Mortgage loans” to “Advances to lenders;” the recognition of mortgage loan commitment basis adjustments; the recognition of the LOCOM adjustment for loans classified as HFS; and the recognition of revised amortization on mortgage loan cost basis adjustments. | |
(d) | Reflects the reclassification of interest rate swap accruals from accrued interest and recognition of derivative fair value adjustments. | |
(e) | Reflects the impact of restatement adjustments on deferred taxes and the correction of tax credit-related errors associated with partnership investments. | |
(f) | Reflects the reclassification of interest rate swap accruals to “Derivative assets at fair value;” the reclassification of “Advances to lenders” from “Mortgage loans;” the impairment of buy-ups; the recognition of “Restricted cash” and “Cash and cash equivalents” related to collateral received from derivatives counterparties; and the impact of cost basis transfers between error categories. | |
(g) | Reflects the reversal of previously recorded unrealized gains and losses on hedged items associated with fair value hedges; the recognition of revised amortization of debt basis adjustments; and the recognition of short-term and long-term debt upon consolidation of MBS trusts in which we own less than 100% of the related securities. | |
(h) | Reflects the reclassification of interest rate swap accruals to “Derivative liabilities at fair value;” the reversal of short-term debt associated with failed dollar roll repurchase transactions; the correction of amortization of buy-downs and risk-based pricing adjustments; and the recognition of liabilities to derivative counterparties associated with restricted cash. |
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(i) | Reflects the recognition of derivative fair value adjustments to the consolidated statements of income and other income or expense related adjustments. | |
(j) | Reflects the reversal of previously recorded derivatives fair value adjustments and the recognition of unrealized gains (losses) on AFS securities andbuy-ups. |
As | Total | |||||||||||
Previously | Restatement | As | ||||||||||
Reported(a) | Adjustments | Restated | ||||||||||
(Dollars in millions) | ||||||||||||
Assets: | ||||||||||||
Investments in securities | $ | 602,429 | $ | (99,093 | )(b) | $ | 503,336 | |||||
Mortgage loans | 172,127 | 106,710 | (c) | 278,837 | ||||||||
Derivative assets at fair value | 954 | (130 | )(d) | 824 | ||||||||
Deferred tax assets | 3,821 | (2,634 | )(e) | 1,187 | ||||||||
Other assets | 20,617 | 9,760 | (f) | 30,377 | ||||||||
Total assets | $ | 799,948 | $ | 14,613 | $ | 814,561 | ||||||
Liabilities and Stockholders’ Equity | ||||||||||||
Liabilities: | ||||||||||||
Debt | $ | 757,510 | $ | 7,520 | (g) | $ | 765,030 | |||||
Derivative liabilities at fair value | 5,069 | 2,508 | (d) | 7,577 | ||||||||
Other liabilities | 19,251 | (553 | )(h) | 18,698 | ||||||||
Total liabilities | 781,830 | 9,475 | 791,305 | |||||||||
Stockholders’ Equity: | ||||||||||||
Retained earnings | 26,175 | (7,041 | )(i) | 19,134 | ||||||||
Accumulated other comprehensive (loss) income | (7,065 | ) | 12,087 | (j) | 5,022 | |||||||
Other stockholders’ equity | (992 | ) | 92 | (900 | ) | |||||||
Total stockholders’ equity | 18,118 | 5,138 | 23,256 | |||||||||
Total liabilities and stockholders’ equity | $ | 799,948 | $ | 14,613 | $ | 814,561 | ||||||
(a) | Certain previously reported balances have been reclassified to conform to the current condensed consolidated balance sheet presentation, as described in “Notes to Consolidated Financial Statements—Note 2, Summary of Significant Accounting Policies.” | |
(b) | Reflects the impact of MBS trust consolidation and sale accounting; the derecognition of HTM securities at amortized cost and recognition of AFS and trading securities at fair value, including commitments accounted for under EITF 96-11; the recognition of revised securities commitment basis adjustments; the recognition of revised amortization on securities cost basis adjustments; and the derecognition of securities related to failed dollar roll repurchase transactions that did not meet the criteria for secured borrowing accounting. | |
(c) | Reflects impact of MBS trust consolidation and sale accounting; the reclassification of “Mortgage loans” to “Advances to lenders;” the recognition of mortgage loan commitment basis adjustments; the recognition of the LOCOM adjustment for loans classified as HFS; and the recognition of revised amortization on mortgage loan cost basis adjustments. | |
(d) | Reflects the reclassification of interest rate swap accruals from accrued interest and recognition of derivative fair value adjustments. | |
(e) | Reflects the impact of restatement adjustments on deferred taxes and the correction of tax credit-related errors associated with partnership investments. | |
(f) | Reflects the reclassification of interest rate swap accruals to “Derivative assets at fair value;” the reclassification of “Advances to lenders” from “Mortgage loans;” the impairment of buy-ups; the recognition of “Restricted cash” and “Cash and cash equivalents” related to collateral received from derivatives counterparties; and the impact of cost basis transfers between error categories. |
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(g) | Reflects the reversal of previously recorded unrealized gains and losses on hedged items associated with fair value hedges; the recognition of revised amortization of debt basis adjustments; and the recognition of short-term and long-term debt upon consolidation of MBS trusts in which we own less than 100% of the related securities. | |
(h) | Reflects the reclassification of interest rate swap accruals to “Derivative liabilities at fair value;” the reversal of short-term debt associated with failed dollar roll repurchase transactions; the correction of amortization of buy-downs and risk-based pricing adjustments; and the recognition of liabilities to derivative counterparties associated with restricted cash. | |
(i) | Reflects the recognition of derivative fair value adjustments to the consolidated statements of income and other income or expense related adjustments. | |
(j) | Reflects the reversal of previously recorded derivatives fair value adjustments and the recognition of unrealized gains (losses) on AFS securities andbuy-ups. |
Accumulated | ||||||||||||||||
Other | Other | Total | ||||||||||||||
Retained | Comprehensive | Stockholders’ | Stockholders’ | |||||||||||||
Earnings | (Loss) Income | Equity | Equity | |||||||||||||
(Dollars in millions) | ||||||||||||||||
December 31, 2001 balance, as previously reported | $ | 26,175 | $ | (7,065 | ) | $ | (992 | ) | $ | 18,118 | ||||||
Restatement adjustments for: | ||||||||||||||||
Debt and derivatives | (10,622 | )(a) | 11,363 | (b) | — | 741 | ||||||||||
Commitments | 413 | 1 | — | 414 | ||||||||||||
Investments in securities | (660 | ) | 6,880 | (c) | — | 6,220 | ||||||||||
MBS trust consolidation and sale accounting | 119 | 81 | — | 200 | ||||||||||||
Financial guaranties and master servicing | (206 | ) | 268 | — | 62 | |||||||||||
Amortization of cost basis adjustments | 154 | — | — | 154 | ||||||||||||
Other adjustments | 296 | — | 92 | 388 | ||||||||||||
Pre-tax total impact of restatement adjustments | (10,506 | ) | 18,593 | 92 | 8,179 | |||||||||||
Tax impact (benefit) of restatement adjustments | (3,465 | ) | 6,506 | — | 3,041 | |||||||||||
Total impact of restatement adjustments | (7,041 | ) | 12,087 | 92 | 5,138 | |||||||||||
December 31, 2001 balance, as restated | $ | 19,134 | $ | 5,022 | $ | (900 | ) | $ | 23,256 | |||||||
(a) | Reflects the recognition of derivative fair value gains (losses) and revised amortization of debt cost basis adjustments. | |
(b) | Reflects the reversal of previously recorded derivative fair value losses. | |
(c) | Reflects the recognition of net unrealized gains on AFS securities. |
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Restatement Adjustments for: | ||||||||||||||||||||||||||||||||||||||||
MBS Trust | Financial | |||||||||||||||||||||||||||||||||||||||
As | Consolidation | Guaranties | Amortization | Total | ||||||||||||||||||||||||||||||||||||
Previously | Debt and | Investments | and Sale | and Master | of Cost Basis | Other | Restatement | As | ||||||||||||||||||||||||||||||||
Reported(a) | Derivatives | Commitments | in Securities | Accounting | Servicing | Adjustments | Adjustments | Adjustments | Restated | |||||||||||||||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 13,569 | $ | 8,098 | $ | — | $ | (162 | ) | $ | 251 | $ | (948 | ) | $ | (1,355 | ) | $ | 24 | $ | 5,908 | $ | 19,477 | |||||||||||||||||
Guaranty fee income | 2,411 | — | — | (1 | ) | (247 | ) | 1,126 | — | (8 | ) | 870 | 3,281 | |||||||||||||||||||||||||||
Investment losses, net | (123 | ) | (53 | ) | (280 | ) | (241 | ) | (230 | ) | — | (1 | ) | (303 | ) | (1,108 | ) | (1,231 | ) | |||||||||||||||||||||
Derivatives fair value losses, net | (2,180 | ) | (2,567 | ) | (1,543 | ) | — | — | — | — | 1 | (4,109 | ) | (6,289 | ) | |||||||||||||||||||||||||
Debt extinguishments losses, net | (2,261 | ) | (430 | ) | — | — | — | — | — | (1 | ) | (431 | ) | (2,692 | ) | |||||||||||||||||||||||||
Loss from partnership investments | (336 | ) | — | — | — | — | — | — | (301 | ) | (301 | ) | (637 | ) | ||||||||||||||||||||||||||
Fee and other income | 1,076 | (692 | ) | (3 | ) | 72 | — | 14 | — | (127 | ) | (736 | ) | 340 | ||||||||||||||||||||||||||
Expenses | 1,743 | — | — | — | — | 17 | (8 | ) | 211 | 220 | 1,963 | |||||||||||||||||||||||||||||
Income before federal income taxes, extraordinary gains (losses), and cumulative effect of a change in accounting principle | 10,413 | 4,356 | (1,826 | ) | (332 | ) | (226 | ) | 175 | (1,348 | ) | (926 | ) | (127 | ) | 10,286 | ||||||||||||||||||||||||
Provision (benefit) for federal income taxes | 2,693 | 1,525 | (639 | ) | (116 | ) | (77 | ) | 56 | (472 | ) | (536 | ) | (259 | ) | 2,434 | ||||||||||||||||||||||||
Income before extraordinary gains (losses) and cumulative effect of a change in accounting principle | 7,720 | 2,831 | (1,187 | ) | (216 | ) | (149 | ) | 119 | (876 | ) | (390 | ) | 132 | 7,852 | |||||||||||||||||||||||||
Extraordinary gains (losses), net of tax effect | — | — | — | — | 195 | — | — | — | 195 | 195 | ||||||||||||||||||||||||||||||
Cumulative effect of change in accounting principle, net of tax effect | 185 | — | (185 | ) | — | 34 | — | — | — | (151 | ) | 34 | ||||||||||||||||||||||||||||
Net income | 7,905 | 2,831 | (1,372 | ) | (216 | ) | 80 | 119 | (876 | ) | (390 | ) | 176 | 8,081 | ||||||||||||||||||||||||||
Preferred stock dividends and issuance costs at redemption | (150 | ) | — | — | — | — | — | — | — | — | (150 | ) | ||||||||||||||||||||||||||||
Net income available to common stockholders | $ | 7,755 | $ | 2,831 | $ | (1,372 | ) | $ | (216 | ) | $ | 80 | $ | 119 | $ | (876 | ) | $ | (390 | ) | $ | 176 | $ | 7,931 | ||||||||||||||||
Basic earnings per share | $ | 7.93 | $ | 2.90 | $ | (1.40 | ) | $ | (0.22 | ) | $ | 0.08 | $ | 0.13 | $ | (0.90 | ) | $ | (0.40 | ) | $ | 0.19 | $ | 8.12 | ||||||||||||||||
Diluted earnings per share | $ | 7.91 | $ | 2.89 | $ | (1.40 | ) | $ | (0.22 | ) | $ | 0.08 | $ | 0.12 | $ | (0.89 | ) | $ | (0.41 | ) | $ | 0.17 | $ | 8.08 | ||||||||||||||||
(a) | Certain amounts have been reclassified to conform to the current condensed income statements presentation, as described in “Notes to Consolidated Financial Statements—Note 2, Summary of Significant Accounting Policies.” |
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Restatement Adjustments for: | ||||||||||||||||||||||||||||||||||||||||
MBS Trust | Financial | |||||||||||||||||||||||||||||||||||||||
As | Consolidation | Guaranties | Amortization | Total | ||||||||||||||||||||||||||||||||||||
Previously | Debt and | Investments | and Sale | and Master | of Cost Basis | Other | Restatement | As | ||||||||||||||||||||||||||||||||
Reported(a) | Derivatives | Commitments | in Securities | Accounting | Servicing | Adjustments | Adjustments | Adjustments | Restated | |||||||||||||||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 10,566 | $ | 8,317 | $ | — | $ | (81 | ) | $ | 165 | $ | (768 | ) | $ | 144 | $ | 83 | $ | 7,860 | $ | 18,426 | ||||||||||||||||||
Guaranty fee income | 1,816 | — | — | (1 | ) | (198 | ) | 908 | — | (9 | ) | 700 | 2,516 | |||||||||||||||||||||||||||
Investment gains (losses), net | 24 | (13 | ) | 189 | (638 | ) | (26 | ) | — | 2 | (39 | ) | (525 | ) | (501 | ) | ||||||||||||||||||||||||
Derivatives fair value losses, net | (4,545 | ) | (13,572 | ) | 5,198 | — | — | — | — | — | (8,374 | ) | (12,919 | ) | ||||||||||||||||||||||||||
Debt extinguishments losses, net | (710 | ) | (104 | ) | — | — | — | — | — | — | (104 | ) | (814 | ) | ||||||||||||||||||||||||||
Loss from partnership investments | (306 | ) | — | — | — | — | — | — | (203 | ) | (203 | ) | (509 | ) | ||||||||||||||||||||||||||
Fee and other income | 637 | (505 | ) | — | 5 | — | 38 | (19 | ) | (67 | ) | (548 | ) | 89 | ||||||||||||||||||||||||||
Expenses | 1,434 | — | — | — | — | — | (8 | ) | 108 | 100 | 1,534 | |||||||||||||||||||||||||||||
Income before federal income taxes | 6,048 | (5,877 | ) | 5,387 | (715 | ) | (59 | ) | 178 | 135 | (343 | ) | (1,294 | ) | 4,754 | |||||||||||||||||||||||||
Provision (benefit) for federal income taxes | 1,429 | (2,057 | ) | 1,886 | (251 | ) | (21 | ) | 63 | 47 | (256 | ) | (589 | ) | 840 | |||||||||||||||||||||||||
Net income | 4,619 | (3,820 | ) | 3,501 | (464 | ) | (38 | ) | 115 | 88 | (87 | ) | (705 | ) | 3,914 | |||||||||||||||||||||||||
Preferred stock dividends and issuance costs at redemption | (111 | ) | — | — | — | — | — | — | — | — | (111 | ) | ||||||||||||||||||||||||||||
Net income available to common stockholders | $ | 4,508 | $ | (3,820 | ) | $ | 3,501 | $ | (464 | ) | $ | (38 | ) | $ | 115 | $ | 88 | $ | (87 | ) | $ | (705 | ) | $ | 3,803 | |||||||||||||||
Basic earnings per share | $ | 4.54 | $ | (3.85 | ) | $ | 3.53 | $ | (0.47 | ) | $ | (0.04 | ) | $ | 0.12 | $ | 0.09 | $ | (0.09 | ) | $ | (0.71 | ) | $ | 3.83 | |||||||||||||||
Diluted earnings per share | $ | 4.52 | $ | (3.83 | ) | $ | 3.51 | $ | (0.47 | ) | $ | (0.04 | ) | $ | 0.12 | $ | 0.09 | $ | (0.09 | ) | $ | (0.71 | ) | $ | 3.81 | |||||||||||||||
(a) | Certain amounts have been reclassified to conform to the current condensed income statements presentation, as described below in “Notes to Consolidated Financial Statements—Note 2, Summary of Significant Accounting Policies.” |
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For the Year Ended December 31, 2003 | For the Year Ended December 31, 2002 | |||||||||||||||||||||||
As | Total | As | Total | |||||||||||||||||||||
Previously | Restatement | As | Previously | Restatement | As | |||||||||||||||||||
Reported | Adjustments | Restated | Reported | Adjustments | Restated | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Net cash flows provided by operating activities | $ | 19,519 | $ | 38,704 | $ | 58,223 | $ | 12,848 | $ | 30,783 | $ | 43,631 | ||||||||||||
Net cash flows used in investing activities | (115,801 | ) | (36,946 | ) | (152,747 | ) | (71,426 | ) | (42,162 | ) | (113,588 | ) | ||||||||||||
Net cash flows provided by financing activities | 95,987 | 206 | 96,193 | 58,770 | 11,868 | 70,638 | ||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | $ | (295 | ) | $ | 1,964 | $ | 1,669 | $ | 192 | $ | 489 | $ | 681 | |||||||||||
Cash and cash equivalents at beginning of the period | 1,710 | 16 | 1,726 | 1,518 | (473 | ) | 1,045 | |||||||||||||||||
Cash and cash equivalents at end of the period | $ | 1,415 | $ | 1,980 | $ | 3,395 | $ | 1,710 | $ | 16 | $ | 1,726 | ||||||||||||
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As of December 31, | ||||||||
2003 | 2002 | |||||||
(Dollars in millions) | ||||||||
Core capital, as previously reported | $ | 34,405 | $ | 28,079 | ||||
Total restatement adjustments | (7,452 | ) | (7,648 | ) | ||||
Core capital, as restated | $ | 26,953 | $ | 20,431 | ||||
Required minimum capital, as previously reported | $ | 31,520 | $ | 27,203 | ||||
Total restatement adjustments | 296 | 485 | ||||||
Required minimum capital, as restated | $ | 31,816 | $ | 27,688 | ||||
Surplus of required minimum capital, as previously reported | $ | 2,885 | $ | 877 | ||||
Total restatement adjustments | (7,748 | ) | (8,134 | ) | ||||
Surplus (deficit) of required minimum capital, as restated | $ | (4,863 | ) | $ | (7,257 | ) | ||
Required critical capital, as previously reported | $ | 16,113 | $ | 13,880 | ||||
Total restatement adjustments | 148 | 246 | ||||||
Required critical capital, as restated | $ | 16,261 | $ | 14,126 | ||||
Surplus of required critical capital, as previously reported | $ | 18,292 | $ | 14,199 | ||||
Total restatement adjustments | (7,601 | ) | (7,894 | ) | ||||
Surplus of required critical capital, as restated | $ | 10,691 | $ | 6,305 | ||||
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• | Derivatives initiated for risk management purposes and mortgage commitments, both of which are recorded in the consolidated balance sheets at fair value with changes in fair value recognized through earnings; | |
• | Guaranty assets and guaranty obligations, which are recorded in the consolidated balance sheets at fair value at the inception of the guaranty and amortized through earnings; | |
• | Investments in securities that are classified as either trading or AFS, which are recorded in the consolidated balance sheets at fair value with the change in fair value of trading securities recognized through earnings and the change in fair value of AFS securities recorded in AOCI; | |
• | Loans included in our portfolio that are classified as held for sale, which are recorded in the consolidated balance sheets at the lower of cost or market with changes in the fair value (not to exceed the cost basis of these loans) recorded through earnings; and | |
• | Retained interests in securitizations and guaranty fee buy-ups on Fannie Mae MBS, which are recorded in the consolidated balance sheets at fair value with unrealized gains and losses recorded in AOCI. |
• | We use actual, observable market prices or market prices obtained from multiple third parties. Pricing information obtained from third parties is internally validated for reasonableness prior to use in the consolidated financial statements. | |
• | Where observable market prices are not readily available, we estimate the fair value using market data and model-based interpolations using standard models that are widely accepted within the industry. Market data includes prices of instruments with similar maturities and characteristics, duration, interest rate yield curves, measures of volatility and prepayment rates. | |
• | If market data used to estimate fair value as described above is not available, we estimate fair value using internally developed models that employ techniques such as a discounted cash flow approach. These models include market-based assumptions that are also derived from internally developed models for prepayment speeds, default rates and severity. |
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Percentage Effect | ||||||||||||||||
of Change in | ||||||||||||||||
Estimated Fair | ||||||||||||||||
Value of | ||||||||||||||||
Derivatives | ||||||||||||||||
On Reported Net | ||||||||||||||||
Estimated Fair Value of Derivatives(1) | Income(2) | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
(Restated) | (Restated) | |||||||||||||||
(Dollars in millions) | ||||||||||||||||
Derivative assets at fair value | $ | 6,527 | $ | 7,058 | ||||||||||||
Derivative liabilities at fair value | 1,095 | 3,070 | ||||||||||||||
Net derivative assets at fair value | $ | 5,432 | $ | 3,988 | ||||||||||||
Effect of:(3) | ||||||||||||||||
+10% change in implied volatility | $ | 973 | $ | 1,173 | 13 | % | 9 | % | ||||||||
−10% change in implied volatility | (956 | ) | (1,173 | ) | (13 | ) | (9 | ) | ||||||||
+100 bps change in rate | $ | 8,525 | $ | 14,211 | 112 | % | 114 | % | ||||||||
− 50 bps change in rate | (3,150 | ) | (6,675 | ) | (41 | ) | (54 | ) |
(1) | Excludes commitments accounted for as derivatives. | |
(2) | Reflects after-tax effect of derivative market value adjustment based on applicable federal income tax rate of 35%. | |
(3) | Calculated based on an instantaneous change in volatility or interest rate. |
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For the Year Ended December 31, | ||||||||
2004 | 2003 | |||||||
(Restated) | ||||||||
(Dollars in millions) | ||||||||
Unamortized cost basis adjustments | $ | 1,820 | $ | 3,210 | ||||
Reported net interest income | $ | 18,081 | $ | 19,477 | ||||
Decrease in net interest income from net amortization | $ | (1,221 | ) | $ | (1,866 | ) | ||
Percentage effect on net interest income of change in interest rates:(1) | ||||||||
100 basis point increase | 4.5 | % | 2.8 | % | ||||
50 basis point decrease | (4.9 | ) | (2.9 | ) |
(1) | Calculated based on an instantaneous change in interest rates. |
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• | If assumptions were changed to cause our variability in trusts to increase from an amount between 40% and 50% to greater than 50%, our total assets and liabilities would increase by approximately $1.0 billion. | |
• | If assumptions were changed to cause our variability in trusts to decrease from an amount between 60% and 50.1% to 50% or less, our total assets and liabilities would decrease by approximately $500 million. |
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Variance | ||||||||||||||||||||||||||||
For the Year Ended December 31, | 2004 vs. 2003 | 2003 vs. 2002 | ||||||||||||||||||||||||||
2004 | 2003 | 2002 | $ | % | $ | % | ||||||||||||||||||||||
(Restated) | (Restated) | |||||||||||||||||||||||||||
(Dollars in millions, except per share amounts) | ||||||||||||||||||||||||||||
Net interest income | $ | 18,081 | $ | 19,477 | $ | 18,426 | $ | (1,396 | ) | (7 | )% | $ | 1,051 | 6 | % | |||||||||||||
Guaranty fee income | 3,604 | 3,281 | 2,516 | 323 | 10 | 765 | 30 | |||||||||||||||||||||
Fee and other income | 404 | 340 | 89 | 64 | 19 | 251 | 282 | |||||||||||||||||||||
Investment losses, net | (362 | ) | (1,231 | ) | (501 | ) | 869 | 71 | (730 | ) | (146 | ) | ||||||||||||||||
Derivatives fair value losses, net | (12,256 | ) | (6,289 | ) | (12,919 | ) | (5,967 | ) | (95 | ) | 6,630 | 51 | ||||||||||||||||
Debt extinguishment losses, net | (152 | ) | (2,692 | ) | (814 | ) | 2,540 | 94 | (1,878 | ) | (231 | ) | ||||||||||||||||
Loss from partnership investments | (702 | ) | (637 | ) | (509 | ) | (65 | ) | (10 | ) | (128 | ) | (25 | ) | ||||||||||||||
Provision for credit losses | (352 | ) | (365 | ) | (284 | ) | 13 | 4 | (81 | ) | (29 | ) | ||||||||||||||||
Other non-interest expense | (2,266 | ) | (1,598 | ) | (1,250 | ) | (668 | ) | (42 | ) | (348 | ) | (28 | ) | ||||||||||||||
Income before federal income taxes, extraordinary gains (losses), and cumulative effect of change in accounting principle | 5,999 | 10,286 | 4,754 | (4,287 | ) | (42 | ) | 5,532 | 116 | |||||||||||||||||||
Provision for federal income taxes | (1,024 | ) | (2,434 | ) | (840 | ) | 1,410 | 58 | (1,594 | ) | (190 | ) | ||||||||||||||||
Extraordinary gains (losses), net of tax effect | (8 | ) | 195 | — | (203 | ) | (104 | ) | 195 | 100 | ||||||||||||||||||
Cumulative effect of change in accounting principle, net of tax effect | — | 34 | — | (34 | ) | (100 | ) | 34 | 100 | |||||||||||||||||||
Net income | $ | 4,967 | $ | 8,081 | $ | 3,914 | $ | (3,114 | ) | (39 | )% | $ | 4,167 | 106 | % | |||||||||||||
Diluted earnings per common share | $ | 4.94 | $ | 8.08 | $ | 3.81 | $ | (3.14 | ) | (39 | )% | $ | 4.27 | 112 | % | |||||||||||||
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For the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||
Average(1) | Average(1) | Average(1) | ||||||||||||||||||||||||||||||||||
Balance | Interest | Yield | Balance | Interest | Yield | Balance | Interest | Yield | ||||||||||||||||||||||||||||
(Restated) | (Restated) | |||||||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Mortgage loans(2) | $ | 400,603 | $ | 21,390 | 5.34 | % | $ | 362,002 | $ | 21,370 | 5.90 | % | $ | 301,821 | $ | 19,870 | 6.58 | % | ||||||||||||||||||
Mortgage securities | 514,529 | 25,302 | 4.92 | 495,219 | 26,483 | 5.35 | 456,755 | 29,444 | 6.45 | |||||||||||||||||||||||||||
Non-mortgage securities(3) | 46,440 | 1,009 | 2.17 | 44,375 | 1,069 | 2.41 | 51,390 | 1,460 | 2.84 | |||||||||||||||||||||||||||
Federal funds sold and securities purchased under agreements to resell | 8,308 | 84 | 1.01 | 6,509 | 32 | 0.49 | 2,972 | 43 | 1.45 | |||||||||||||||||||||||||||
Advances to lenders | 4,773 | 33 | 0.69 | 12,613 | 110 | 0.87 | 14,524 | 107 | 0.74 | |||||||||||||||||||||||||||
Total interest-earning assets | $ | 974,653 | $ | 47,818 | 4.91 | $ | 920,718 | $ | 49,064 | 5.33 | $ | 827,462 | $ | 50,924 | 6.15 | |||||||||||||||||||||
Interest-bearing liabilities: | �� | |||||||||||||||||||||||||||||||||||
Short-term debt | $ | 331,971 | $ | 4,380 | 1.32 | % | $ | 318,600 | $ | 3,967 | 1.25 | % | $ | 287,193 | $ | 5,373 | 1.87 | % | ||||||||||||||||||
Long-term debt | 625,225 | 25,338 | 4.05 | 582,686 | 25,575 | 4.39 | 515,968 | 27,099 | 5.25 | |||||||||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 3,037 | 19 | 0.63 | 6,421 | 45 | 0.70 | 7,485 | 26 | 0.35 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | $ | 960,233 | $ | 29,737 | 3.10 | % | $ | 907,707 | $ | 29,587 | 3.26 | % | $ | 810,646 | $ | 32,498 | 4.01 | % | ||||||||||||||||||
Impact of net non-interest bearing funding | $ | 14,420 | 0.05 | % | $ | 13,011 | 0.05 | % | $ | 16,816 | 0.08 | % | ||||||||||||||||||||||||
Taxable-equivalent adjustment on tax-exempt investments(4) | 101 | 0.01 | 72 | 0.01 | 74 | 0.01 | ||||||||||||||||||||||||||||||
Taxable-equivalent net interest income and net interest yield(5) | $ | 18,182 | 1.87 | % | $ | 19,549 | 2.12 | % | $ | 18,500 | 2.24 | % | ||||||||||||||||||||||||
(1) | Average balances have been calculated based on beginning of year and end of year amortized cost. | |
(2) | Includes average balance on nonaccrual loans of $7.6 billion, $6.8 billion and $5.3 billion for the years ended December 31, 2004, 2003 and 2002, respectively. | |
(3) | Includes cash equivalents. | |
(4) | Represents adjustment to permit comparison of yields on tax-exempt and taxable assets calculated using a 35% marginal tax rate for each of the years presented. | |
(5) | Net interest yield is calculated based on taxable-equivalent net interest income divided by average balance of total interest-earning assets. |
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2004 vs. 2003 | 2003 vs. 2002 | |||||||||||||||||||||||
Total | Variance Due to:(1) | Total | Variance Due to:(1) | |||||||||||||||||||||
Variance | Volume | Rate | Variance | Volume | Rate | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Interest income: | ||||||||||||||||||||||||
Mortgage loans | $ | 20 | $ | 2,164 | $ | (2,144 | ) | $ | 1,500 | $ | 3,692 | $ | (2,192 | ) | ||||||||||
Mortgage securities | (1,181 | ) | 1,006 | (2,187 | ) | (2,961 | ) | 2,340 | (5,301 | ) | ||||||||||||||
Non-mortgage securities | (60 | ) | 48 | (108 | ) | (391 | ) | (185 | ) | (206 | ) | |||||||||||||
Federal funds sold and securities purchased under agreements to resell | 52 | 11 | 41 | (11 | ) | 29 | (40 | ) | ||||||||||||||||
Advances to lenders | (77 | ) | (58 | ) | (19 | ) | 3 | (15 | ) | 18 | ||||||||||||||
Total interest income | (1,246 | ) | 3,171 | (4,417 | ) | (1,860 | ) | 5,861 | (7,721 | ) | ||||||||||||||
Interest expense: | ||||||||||||||||||||||||
Short-term debt | 413 | 171 | 242 | (1,406 | ) | 539 | (1,945 | ) | ||||||||||||||||
Long-term debt | (237 | ) | 1,797 | (2,034 | ) | (1,524 | ) | 3,251 | (4,775 | ) | ||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | (26 | ) | (22 | ) | (4 | ) | 19 | (4 | ) | 23 | ||||||||||||||
Total interest expense | 150 | 1,946 | (1,796 | ) | (2,911 | ) | 3,786 | (6,697 | ) | |||||||||||||||
Net interest income | (1,396 | ) | $ | 1,225 | $ | (2,621 | ) | 1,051 | $ | 2,075 | $ | (1,024 | ) | |||||||||||
Taxable-equivalent adjustment on tax-exempt investments(2) | 29 | (2 | ) | |||||||||||||||||||||
Taxable-equivalent net interest income | $ | (1,367 | ) | $ | 1,049 | |||||||||||||||||||
(1) | Combined rate/volume variances are allocated to the rate and volume variances based on their relative size. | |
(2) | Represents adjustment to permit comparison of yields on tax-exempt and taxable assets calculated using a 35% marginal tax rate for each of the years presented. |
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For the Year Ended December 31, | Variance | |||||||||||||||||||||||||||||||
2004 | 2003 | 2002 | 2004 | 2003 | ||||||||||||||||||||||||||||
Amount | Rate(1) | Amount | Rate(1) | Amount | Rate(1) | vs. 2003 | vs. 2002 | |||||||||||||||||||||||||
(Restated) | (Restated) | |||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||
Guaranty fee income, excluding impairment of buy-ups | $ | 3,640 | 21.0 | bp | $ | 3,474 | 22.2 | bp | $ | 2,808 | 21.5 | bp | 5 | % | 24 | % | ||||||||||||||||
Impairment of buy-ups | (36 | ) | (0.2 | ) | (193 | ) | (1.2 | ) | (292 | ) | (2.2 | ) | (81 | ) | (34 | ) | ||||||||||||||||
Guaranty fee income and average effective guaranty fee rate | $ | 3,604 | 20.8 | bp | $ | 3,281 | 21.0 | bp | $ | 2,516 | 19.3 | bp | 10 | % | 30 | % | ||||||||||||||||
Average outstanding Fannie Mae MBS and other guaranties(2) | $ | 1,733,060 | $ | 1,564,812 | $ | 1,303,677 | 11 | % | 20 | % | ||||||||||||||||||||||
Fannie Mae MBS issues | 552,482 | 1,220,066 | 743,630 | (55 | ) | 64 |
(1) | Calculated based on guaranty fee income components divided by average outstanding Fannie Mae MBS and other guaranties. Shown in basis points. | |
(2) | Reflects average during the reported period calculated based on beginning and end of year balances of the aggregate unpaid principal balance of loans underlying Fannie Mae MBS and other guaranties. Other guaranties include $14.7 billion, $12.8 billion and $11.8 billion as of December 31, 2004, 2003 and 2002, respectively, related to long-term standby commitments and credit enhancements. |
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For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
(Dollars in millions) | ||||||||||||
Other-than-temporary impairment onavailable-for-sale securities(1) | $ | (389 | ) | $ | (733 | ) | $ | (676 | ) | |||
Lower-of-cost-or-market adjustments on held for sale loans | (110 | ) | (370 | ) | (17 | ) | ||||||
Gains (losses) on Fannie Mae portfolio securitizations, net | (34 | ) | (13 | ) | 13 | |||||||
Gains (losses) on sale of investment securities, net | 185 | 87 | (14 | ) | ||||||||
Unrealized gains (losses) on trading securities, net | 24 | (97 | ) | 205 | ||||||||
Other investment losses, net | (38 | ) | (105 | ) | (12 | ) | ||||||
Investment losses, net | $ | (362 | ) | $ | (1,231 | ) | $ | (501 | ) | |||
(1) | Excludesother-than-temporary impairment on guaranty assets and buy-ups as these amounts are recognized as a component of guaranty fee income. |
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• | Changes in the level of interest rates: Because our derivatives predominately consist of pay-fixed swaps, we typically report losses in fair value when interest rates decrease. As part of our economic hedging strategy, these derivatives, in combination with our debt issuances, are intended to offset changes in the fair value of our mortgage assets, which tend to increase in value when interest rates decrease. | |
• | Implied interest rate volatility: We purchase option-based derivatives to economically hedge the embedded prepayment option in our mortgage investments. A key variable in estimating the fair value of |
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option-based derivatives is implied volatility, which reflects the market’s expectation about the future volatility of interest rates. Assuming all other factors are held equal, including interest rates, a decrease in implied volatility would reduce the fair value of our derivatives. |
• | Changes in our derivative activity: As interest rates change, we are likely to take actions to rebalance our portfolio to manage our interest rate exposure. As interest rates decrease, expected mortgage prepayments are likely to increase, which reduces the duration of our mortgage investments. In this scenario, we generally will rebalance our existing portfolio to manage this risk by terminating pay-fixed swaps or adding receive-fixed swaps, which shortens the duration of our liabilities. Conversely, when interest rates increase and the duration of our mortgage assets increases, we are likely to rebalance our existing portfolio by adding pay-fixed swaps that have the effect of extending the duration of our liabilities. We also add derivatives in various interest rate environments to hedge the risk of incremental mortgage purchases that we are not able to accomplish solely through our issuance of debt securities. |
As of December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
(Dollars in millions) | ||||||||||||
Beginning net derivative asset (liability)(2) | $ | 3,988 | $ | (3,365 | ) | $ | (6,135 | ) | ||||
Effect of cash payments: | ||||||||||||
Fair value at inception of contracts entered into during the period(3) | 2,998 | 5,221 | 5,425 | |||||||||
Fair value at date of termination of contracts settled during the period(4) | 4,129 | 1,520 | 7,554 | |||||||||
Periodic net cash contractual interest payments | 6,526 | 5,365 | 7,909 | |||||||||
Total cash payments | 13,653 | 12,106 | 20,888 | |||||||||
Income statement impact of recognized amounts: | ||||||||||||
Periodic net contractual interest expense accruals on interest rate swaps | (4,981 | ) | (6,363 | ) | (7,583 | ) | ||||||
Net change in fair value during the period | (7,228 | ) | 1,610 | (10,535 | ) | |||||||
Derivatives fair value losses, net(5) | (12,209 | ) | (4,753 | ) | (18,118 | ) | ||||||
Ending derivative asset (liability)(2) | $ | 5,432 | $ | 3,988 | $ | (3,365 | ) | |||||
Derivatives fair value gains (losses) attributable to: | ||||||||||||
Periodic net contractual interest expense accruals on interest rate swaps | $ | (4,981 | ) | $ | (6,363 | ) | $ | (7,583 | ) | |||
Net change in fair value of terminated derivative contracts from end of prior year to date of termination | (4,096 | ) | (1,103 | ) | (4,056 | ) | ||||||
Net change in fair value of outstanding derivative contracts, including derivative contracts entered into during the period | (3,132 | ) | 2,713 | (6,479 | ) | |||||||
Derivatives fair value losses, net(5) | $ | (12,209 | ) | $ | (4,753 | ) | $ | (18,118 | ) | |||
(1) | Excludes mortgage commitments. | |
(2) | Represents the net of “Derivative assets at fair value” and “Derivative liabilities at fair value” recorded in our consolidated balance sheets, excluding mortgage commitments. |
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(3) | Primarily includes upfront premiums paid on option contracts. | |
(4) | Primarily represents cash paid upon termination of derivative contracts. | |
(5) | Reflects net derivatives fair value losses recognized in the consolidated statements of income, excluding mortgage commitments. |
• | Cash payments made to purchase options (purchased options premiums) increase the derivative asset recorded in the consolidated balance sheets. | |
• | Cash payments to terminate and/or sell derivative contracts reduce the derivative liability recorded in the consolidated balance sheets. | |
• | Periodic interest payments on our interest rate swap contracts also reduce the derivative liability as we accrue these amounts based on the contractual terms and recognize the accrual as an increase to the net derivative liability recorded in the consolidated balance sheets. The corresponding offsetting amount is recorded as expense and included as a component of derivatives fair value losses in the consolidated statements of income. | |
• | Changes in the estimated fair value of our derivatives that result in a loss are recorded as an increase to the derivative liability or as a decrease to the derivative asset recorded in the consolidated balance sheets. The corresponding offsetting amount is recorded as a component of derivatives fair value losses in the consolidated statements of income. | |
• | Changes in the estimated fair value of our derivatives that result in a gain are recorded as a decrease to the derivative liability or as an increase to the derivative asset recorded in the consolidated balance sheets. The corresponding offsetting amount is recorded as a component of derivatives fair value gains in the consolidated statements of income. |
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For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
(Dollars in millions) | ||||||||||||
Risk management derivatives: | ||||||||||||
Swaps: | ||||||||||||
Pay-fixed | $ | (10,640 | ) | $ | (4,269 | ) | $ | (24,477 | ) | |||
Receive-fixed | 3,917 | 1,849 | 4,550 | |||||||||
Basis swaps | 51 | (1 | ) | 10 | ||||||||
Foreign currency swaps | 379 | 695 | 369 | |||||||||
Swaptions: | ||||||||||||
Pay-fixed | (3,841 | ) | 387 | (1,918 | ) | |||||||
Receive-fixed | (1,913 | ) | (3,047 | ) | 4,279 | |||||||
Interest rate caps | (140 | ) | (339 | ) | (734 | ) | ||||||
Other(1) | (22 | ) | (28 | ) | (197 | ) | ||||||
Risk management derivatives fair value losses, net | (12,209 | ) | (4,753 | ) | (18,118 | ) | ||||||
Mortgage commitment derivatives fair value gains (losses), net | (47 | ) | (1,536 | ) | 5,199 | |||||||
Total derivatives fair value losses, net | $ | (12,256 | ) | $ | (6,289 | ) | $ | (12,919 | ) | |||
As of December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
5-year swap rate: | ||||||||||||
Beginning rate | 3.64 | % | 3.20 | % | 5.09 | % | ||||||
Change | 0.38 | 0.44 | (1.89 | ) | ||||||||
Ending rate | 4.02 | % | 3.64 | % | 3.20 | % | ||||||
(1) | Includes MBS options, forward starting debt, forward purchase and sale agreements, swap credit enhancements, mortgage insurance contracts and exchange-traded futures. |
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As of December 31, | ||||||||||||||||
2004 | 2003 | |||||||||||||||
Estimated | Estimated | |||||||||||||||
Notional | Fair | Notional | Fair | |||||||||||||
Amount | Value(1) | Amount | Value(1) | |||||||||||||
(Restated) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||
Risk management derivatives: | ||||||||||||||||
Swaps: | ||||||||||||||||
Pay-fixed | $ | 142,017 | $ | (6,687 | ) | $ | 364,377 | $ | (12,197 | ) | ||||||
Receive-fixed | 81,193 | 479 | 201,229 | 3,393 | ||||||||||||
Basis swaps | 32,273 | 7 | 32,303 | (8 | ) | |||||||||||
Foreign currency swaps | 11,453 | 686 | 5,195 | 335 | ||||||||||||
Swaptions: | ||||||||||||||||
Pay-fixed | 170,705 | 3,370 | 163,980 | 5,693 | ||||||||||||
Receive-fixed | 147,570 | 7,711 | 141,195 | 8,468 | ||||||||||||
Interest rate caps | 104,150 | 638 | 130,350 | 607 | ||||||||||||
Other(2) | 733 | 84 | 379 | 98 | ||||||||||||
690,094 | 6,288 | 1,039,008 | 6,389 | |||||||||||||
Accrued interest | — | (856 | ) | — | (2,401 | ) | ||||||||||
Total risk management derivatives | $ | 690,094 | $ | 5,432 | $ | 1,039,008 | $ | 3,988 | ||||||||
Mortgage commitment derivatives: | ||||||||||||||||
Mortgage commitments to purchase whole loans | $ | 2,118 | $ | 4 | $ | 2,709 | $ | 10 | ||||||||
Forward contracts to purchase mortgage-related securities | 20,059 | 43 | 19,882 | 142 | ||||||||||||
Forward contracts to sell mortgage-related securities | 18,423 | (35 | ) | 20,969 | (147 | ) | ||||||||||
Total mortgage commitment derivatives | $ | 40,600 | $ | 12 | $ | 43,560 | $ | 5 | ||||||||
(1) | Represents the net amount of “Derivative assets at fair value” and “Derivative liabilities at fair value” in the consolidated balance sheets. | |
(2) | Includes MBS options, swap credit enhancements, and the fair value of mortgage insurance contracts that are accounted for as derivatives. These mortgage insurance contracts have payment provisions that are not based on a notional amount. |
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Increase (Decrease) | ||||||||||||||||||||||||||||
For the Year Ended December 31, | 2004 vs. 2003 | 2003 vs. 2002 | ||||||||||||||||||||||||||
2004 | 2003 | 2002 | $ | % | $ | % | ||||||||||||||||||||||
(Restated) | (Restated) | |||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||
Revenue(1): | ||||||||||||||||||||||||||||
Single-Family Credit Guaranty | $ | 5,153 | $ | 4,994 | $ | 3,957 | $ | 159 | 3 | % | $ | 1,037 | 26 | % | ||||||||||||||
Housing and Community Development | 538 | 398 | 305 | 140 | 35 | 93 | 30 | |||||||||||||||||||||
Capital Markets | 46,135 | 47,293 | 49,267 | (1,158 | ) | (2 | ) | (1,974 | ) | (4 | ) | |||||||||||||||||
Total | $ | 51,826 | $ | 52,685 | $ | 53,529 | $ | (859 | ) | (2 | )% | $ | (844 | ) | (2 | )% | ||||||||||||
Net income: | ||||||||||||||||||||||||||||
Single-Family Credit Guaranty | $ | 2,514 | $ | 2,481 | $ | 1,958 | $ | 33 | 1 | % | $ | 523 | 27 | % | ||||||||||||||
Housing and Community Development | 337 | 286 | 184 | 51 | 18 | 102 | 55 | |||||||||||||||||||||
Capital Markets | 2,116 | 5,314 | 1,772 | (3,198 | ) | (60 | ) | 3,542 | 200 | |||||||||||||||||||
Total | $ | 4,967 | $ | 8,081 | $ | 3,914 | $ | (3,114 | ) | (39 | )% | $ | 4,167 | 106 | % | |||||||||||||
As of December 31, | ||||||||||||||||||||||||||||
2004 | 2003 | |||||||||||||||||||||||||||
(Restated) | ||||||||||||||||||||||||||||
Total assets: | ||||||||||||||||||||||||||||
Single-Family Credit Guaranty business | $ | 11,543 | $ | 8,724 | $ | 2,819 | 32 | % | ||||||||||||||||||||
Housing and Community Development | 10,166 | 7,853 | 2,313 | 29 | ||||||||||||||||||||||||
Capital Markets Group | 999,225 | 1,005,698 | (6,473 | ) | (1 | ) | ||||||||||||||||||||||
Total | $ | 1,020,934 | $ | 1,022,275 | $ | (1,341 | ) | — | % | |||||||||||||||||||
(1) | Includes interest income, guaranty fee income, and fee and other income. |
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• | First, there was intense competition for the purchase of mortgage assets by a growing number of mortgage investors through a variety of investment vehicles and structures. While single-family mortgage originations posted the second strongest year in history at $2.8 trillion ($1.3 trillion for home purchase and $1.5 trillion for refinancing) in 2004, the appetite of other investors to purchase and hold mortgages also remained strong. | |
• | Second, in a steeper interest rate curve environment and with a variety of new mortgage products being introduced and accepted by investors at tightening credit spreads, consumers increasingly took advantage of adjustable-rate mortgages, including non-traditional products such as interest-only ARMs, negative-amortizing ARMs and a variety of other product and risk combinations. This meaningfully changed the overall mix of mortgage originations in the primary mortgage market away from the long-term fixed-rate mortgage, where we have historically had the greatest market penetration. In addition, the sub-prime mortgage market, where we had little presence, began to represent a progressively greater portion of mortgage originations. | |
• | Third, as consumer demand for floating-rate and sub-prime mortgage loans grew, so did demand from other mortgage investors, which accelerated the growth of competing securitization options in the form of private-label mortgage-related securities. This development challenged the competitive position of our Fannie Mae MBS in the secondary market and sparked aggressive competition for loans. |
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• | a $6.0 billion, or 95%, increase in derivatives fair value losses to $12.3 billion in 2004, primarily due to changes in interest rates and a decrease in implied volatility that resulted in a decline in the fair value of our option-based derivatives; and | |
• | a $1.3 billion, or 7%, decline in net interest income in 2004 from 2003, primarily due to a 12% decline in our net interest yield due to increasing short-term interest rates and a shift in portfolio purchases to a greater percentage of ARM loans, floating-rate securities and other short-term assets that have lower initial spreads, partially offset by a 6% increase in average interest-earning assets. |
• | a $2.5 billion, or 94%, decrease in debt extinguishment losses in 2004 as compared to 2003, primarily due to a significant decrease in the amount of our debt securities repurchased; | |
• | a $1.3 billion, or 70%, decrease in the provision for federal income taxes in 2004 as compared to 2003, primarily due to a significant reduction in taxable income; and | |
• | a $861 million, or 66%, decrease in investment losses from 2004 to 2003, primarily due to a significant reduction inother-than-temporary impairments compared to 2003 on certain securities backed by manufactured housing loans and aircraft leases, and reduced losses fromlower-of-cost-or-market adjustments on HFS loans, resulting from lower loan acquisition volumes and more stable interest rates in 2004. |
• | a $6.6 billion, or 51%, decrease in derivatives fair value losses to $6.3 billion in 2003, primarily due to an increase in interest rates during the second half of 2003 as compared to a decline in interest rates in 2002; and | |
• | a $1.0 billion, or 6%, increase in net interest income in 2003 from 2002, primarily due to a 12% increase in the amount of average interest-earning assets, partially offset by a 6% decline in the net interest yield. |
• | a $1.9 billion, or 231%, increase in debt extinguishment losses in 2003 as compared to 2002, primarily due to a significant increase in the amount of our debt securities repurchased; | |
• | a $1.5 billion, or 372%, increase in the provision for federal income taxes in 2003 as compared to 2002, primarily due to a significant increase in taxable income; and | |
• | a $765 million, or 141%, increase in investment losses in 2003 as compared to 2002, primarily due to increased losses on our trading portfolio and higher losses onlower-of-cost-or-market adjustments on HFS loans. |
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Purchases | Sales | Liquidations(2) | ||||||||||||||||||||||||||||||||||
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | 2004 | 2003 | 2002 | ||||||||||||||||||||||||||||
(Restated) | (Restated) | (Restated) | (Restated) | (Restated) | (Restated) | |||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||
Mortgage loans: | ||||||||||||||||||||||||||||||||||||
Fixed-rate: | ||||||||||||||||||||||||||||||||||||
Long-term | $ | 53,305 | $ | 98,474 | $ | 61,594 | $ | — | $ | 8 | $ | — | $ | 69,182 | $ | 135,002 | $ | 83,839 | ||||||||||||||||||
Intermediate-term(3) | 23,470 | 56,591 | 36,856 | — | — | — | 31,446 | 37,331 | 18,992 | |||||||||||||||||||||||||||
Total fixed-rate loans | 76,775 | 155,065 | 98,450 | — | 8 | — | 100,628 | 172,333 | 102,831 | |||||||||||||||||||||||||||
Adjustable-rate | 9,118 | 8,800 | 3,476 | 66 | — | — | 7,640 | 6,679 | 6,297 | |||||||||||||||||||||||||||
Total mortgage loans | 85,893 | 163,865 | 101,926 | 66 | 8 | — | 108,268 | 179,012 | 109,128 | |||||||||||||||||||||||||||
Mortgage securities: | ||||||||||||||||||||||||||||||||||||
Fixed-rate: | ||||||||||||||||||||||||||||||||||||
Long-term | 58,412 | 292,675 | 223,013 | 14,691 | 18,079 | 12,792 | 107,309 | 257,760 | 153,391 | |||||||||||||||||||||||||||
Intermediate-term(4) | 4,834 | 37,499 | 18,782 | 3,460 | 5,350 | 792 | 8,097 | 12,623 | 10,570 | |||||||||||||||||||||||||||
Total fixed-rate securities | 63,246 | 330,174 | 241,795 | 18,151 | 23,429 | 13,584 | 115,406 | 270,383 | 163,961 | |||||||||||||||||||||||||||
Adjustable-rate | 109,339 | 31,720 | 9,472 | 161 | 1,283 | 396 | 24,785 | 6,756 | 3,801 | |||||||||||||||||||||||||||
Total mortgage securities | 172,585 | 361,894 | 251,267 | 18,312 | 24,712 | 13,980 | 140,191 | 277,139 | 167,762 | |||||||||||||||||||||||||||
Total mortgage portfolio | $ | 258,478 | $ | 525,759 | $ | 353,193 | $ | 18,378 | $ | 24,720 | $ | 13,980 | $ | 248,459 | $ | 456,151 | $ | 276,890 | ||||||||||||||||||
Annual liquidation rate(5) | 27.9 | % | 55.1 | % | 37.4 | % |
(1) | Excludes premiums, discounts and other deferred price adjustments. | |
(2) | Includes scheduled repayments, prepayments and foreclosures. | |
(3) | Consists of mortgage loans with contractual maturities at purchase equal to or less than 15 years. | |
(4) | Consists of mortgage securities with maturities of 15 years or less at issue date. | |
(5) | Represents liquidations as a percentage of the average gross mortgage portfolio. |
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As of December 31, | ||||||||||||||||
2004 | 2003 | 2002 | 2001 | |||||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||||||
(Dollars in millions) | ||||||||||||||||
Mortgage loans: | ||||||||||||||||
Single-family:(2) | ||||||||||||||||
Government insured or guaranteed | $ | 10,112 | $ | 7,284 | $ | 6,404 | $ | 6,381 | ||||||||
Conventional: | ||||||||||||||||
Long-term, fixed-rate | 230,585 | 250,915 | 223,794 | 198,468 | ||||||||||||
Intermediate-term, fixed-rate(3) | 76,640 | 85,130 | 59,521 | 45,018 | ||||||||||||
Adjustable-rate | 38,350 | 19,155 | 12,142 | 12,791 | ||||||||||||
Total conventional single-family | 345,575 | 355,200 | 295,457 | 256,277 | ||||||||||||
Total single-family | 355,687 | 362,484 | 301,861 | 262,658 | ||||||||||||
Multifamily:(2) | ||||||||||||||||
Government insured or guaranteed | 1,074 | 1,204 | 1,898 | 2,116 | ||||||||||||
Conventional | 43,396 | 33,945 | 19,485 | 14,760 | ||||||||||||
Total multifamily | 44,470 | 35,149 | 21,383 | 16,876 | ||||||||||||
Total mortgage loans | 400,157 | 397,633 | 323,244 | 279,534 | ||||||||||||
Unamortized premiums (discounts) and deferred price adjustments, net | 1,647 | 1,768 | 1,358 | (493 | ) | |||||||||||
Lower of cost or market adjustments on loans held for sale | (83 | ) | (50 | ) | (16 | ) | (36 | ) | ||||||||
Allowance for loan losses for loans held for investment | (349 | ) | (290 | ) | (216 | ) | (168 | ) | ||||||||
Total mortgage loans, net | 401,372 | 399,061 | 324,370 | 278,837 | ||||||||||||
Mortgage-related securities: | ||||||||||||||||
Fannie Mae single-class MBS | 272,665 | 337,463 | 292,611 | 237,051 | ||||||||||||
Non-Fannie Mae single-class mortgage securities | 35,656 | 33,367 | 38,731 | 50,982 | ||||||||||||
Fannie Mae structured MBS | 71,739 | 68,459 | 87,772 | 90,147 | ||||||||||||
Non-Fannie Mae structured mortgage securities | 109,455 | 45,065 | 28,188 | 29,137 | ||||||||||||
Mortgage revenue bonds | 22,076 | 20,359 | 19,650 | 18,391 | ||||||||||||
Other mortgage-related securities | 5,461 | 6,522 | 9,583 | 10,711 | ||||||||||||
Total mortgage-related securities | 517,052 | 511,235 | 476,535 | 436,419 | ||||||||||||
Market value adjustments(4) | 6,680 | 7,973 | 17,868 | 7,205 | ||||||||||||
Other-than-temporary impairments | (432 | ) | (412 | ) | (204 | ) | (22 | ) | ||||||||
Unamortized premiums (discounts) and deferred price adjustments, net | 173 | 1,442 | 1,842 | (1,060 | ) | |||||||||||
Total mortgage-related securities, net | 523,473 | 520,238 | 496,041 | 442,542 | ||||||||||||
Mortgage portfolio, net | $ | 924,845 | $ | 919,299 | $ | 820,411 | $ | 721,379 | ||||||||
(1) | Mortgage loans and mortgage-related securities are reported at unpaid principal balance. | |
(2) | Mortgage loans include $152.7 billion, $162.5 billion, $135.8 billion and $113.4 billion of mortgage-related securities that were consolidated in the consolidated balance sheets as loans as of December 31, 2004, 2003, 2002 and 2001, respectively. | |
(3) | Intermediate-term, fixed-rate consists of mortgage loans with contractual maturities at purchase equal to or less than 15 years. | |
(4) | Includes unrealized gains and losses on mortgage-related securities and securities commitments classified as trading and available for sale. |
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As of December 31, 2004 | ||||||||||||||||||||||||||||||||||||||||
After One Year | After Five Years | |||||||||||||||||||||||||||||||||||||||
Total | Total | One Year or Less | Through Five Years | Through Ten Years | After Ten Years | |||||||||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||||||||
Cost(1) | Value | Cost(1) | Value | Cost(1) | Value | Cost(1) | Value | Cost(1) | Value | |||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||||||
Fannie Mae single-class MBS(2) | $ | 238,386 | $ | 241,828 | $ | — | $ | — | $ | 701 | $ | 746 | $ | 3,163 | $ | 3,338 | $ | 234,522 | $ | 237,744 | ||||||||||||||||||||
Non-Fannie Mae single-class mortgage securities(2) | 34,429 | 35,168 | — | — | 58 | 61 | 420 | 435 | 33,951 | 34,672 | ||||||||||||||||||||||||||||||
Fannie Mae structured MBS(2) | 72,093 | 73,367 | 188 | 239 | 78 | 79 | 426 | 444 | 71,401 | 72,605 | ||||||||||||||||||||||||||||||
Non-Fannie Mae structured mortgage securities(2) | 109,564 | 109,820 | 4 | 4 | 10 | 10 | 56 | 57 | 109,494 | 109,749 | ||||||||||||||||||||||||||||||
Mortgage revenue bonds | 22,124 | 22,657 | 180 | 179 | 687 | 686 | 658 | 674 | 20,599 | 21,118 | ||||||||||||||||||||||||||||||
Other mortgage-related securities(3) | 5,043 | 5,346 | — | (3 | ) | — | — | — | — | 5,043 | 5,349 | |||||||||||||||||||||||||||||
Asset-backed securities(2) | 25,632 | 25,645 | 5,094 | 5,094 | 17,532 | 17,521 | 1,552 | 1,554 | 1,454 | 1,476 | ||||||||||||||||||||||||||||||
Corporate debt securities | 15,102 | 15,098 | 5,302 | 5,305 | 9,700 | 9,693 | 100 | 100 | — | — | ||||||||||||||||||||||||||||||
Municipal bonds | 865 | 863 | 865 | 863 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Other non-mortgage-related securities | 2,302 | 2,303 | 1,782 | 1,783 | 520 | 520 | — | — | — | — | ||||||||||||||||||||||||||||||
Total | $ | 525,540 | $ | 532,095 | $ | 13,415 | $ | 13,464 | $ | 29,286 | $ | 29,316 | $ | 6,375 | $ | 6,602 | $ | 476,464 | $ | 482,713 | ||||||||||||||||||||
Yield(4) | 4.64 | % | 2.78 | % | 1.74 | % | 5.50 | % | 4.86 | % |
(1) | Amortized cost includes unamortized premiums, discounts and other deferred price adjustments, as well asother-than-temporary impairment write downs. | |
(2) | Asset-backed securities, including mortgage-backed securities, are reported based on contractual maturities assuming no prepayments. | |
(3) | Includes commitments related to mortgage securities that are accounted for as securities. | |
(4) | Yields are determined by dividing interest income (including the amortization and accretion of premiums, discounts and other deferred price adjustments) by amortized cost balances as of year-end. |
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• | the fair value of our other assets and our total assets; | |
• | the fair value of our other liabilities and our total liabilities; and | |
• | the fair value of our net assets. |
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As of December 31, 2004 | As of December 31, 2003 | |||||||||||||||||||||||
Carrying | Fair Value | Estimated | Carrying | Fair Value | Estimated | |||||||||||||||||||
Value | Adjustment(1) | Fair Value | Value | Adjustment(1) | Fair Value | |||||||||||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 3,701 | $ | — | $ | 3,701 | (2) | $ | 4,804 | $ | — | $ | 4,804 | (2) | ||||||||||
Federal funds sold and securities purchased under agreements to resell | 3,930 | — | 3,930 | (2) | 12,686 | — | 12,686 | (2) | ||||||||||||||||
Trading securities | 35,287 | — | 35,287 | (2) | 43,798 | — | 43,798 | (2) | ||||||||||||||||
Available-for-sale securities | 532,095 | — | 532,095 | (2) | 523,272 | — | 523,272 | (2) | ||||||||||||||||
Mortgage loans held for sale | 11,721 | 131 | 11,852 | (2) | 13,596 | 154 | 13,750 | (2) | ||||||||||||||||
Mortgage loans held for investment, net of allowance for loan losses | 389,651 | 7,952 | 397,603 | (2) | 385,465 | 9,269 | 394,734 | (2) | ||||||||||||||||
Derivative assets at fair value | 6,589 | — | 6,589 | (2) | 7,218 | — | 7,218 | (2) | ||||||||||||||||
Guaranty assets and buy-ups | 6,616 | 2,647 | 9,263 | (2)(3) | 4,998 | 3,619 | 8,617 | (2)(3) | ||||||||||||||||
Total financial assets | 989,590 | 10,730 | 1,000,320 | 995,837 | 13,042 | 1,008,879 | ||||||||||||||||||
Other assets | 31,344 | (23 | ) | 31,321 | (4)(5) | 26,438 | 2,885 | 29,323 | (4)(5) | |||||||||||||||
Total assets | $ | 1,020,934 | $ | 10,707 | $ | 1,031,641 | (6) | $ | 1,022,275 | $ | 15,927 | $ | 1,038,202 | (6) | ||||||||||
Liabilities: | ||||||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 2,400 | $ | (1 | ) | $ | 2,399 | (2) | $ | 3,673 | $ | (5 | ) | $ | 3,668 | (2) | ||||||||
Short-term debt | 320,280 | (567 | ) | 319,713 | (2) | 343,662 | (96 | ) | 343,566 | (2) | ||||||||||||||
Long-term debt | 632,831 | 15,445 | 648,276 | (2) | 617,618 | 23,053 | 640,671 | (2) | ||||||||||||||||
Derivative liabilities at fair value | 1,145 | — | 1,145 | (2) | 3,225 | — | 3,225 | (2) | ||||||||||||||||
Guaranty obligations | 8,784 | (3,512 | ) | 5,272 | (2) | 6,401 | (1,256 | ) | 5,145 | (2) | ||||||||||||||
Total financial liabilities | 965,440 | 11,365 | 976,805 | 974,579 | 21,696 | 996,275 | ||||||||||||||||||
Other liabilities | 16,516 | (1,850 | ) | 14,666 | (5)(7) | 15,423 | (1,894 | ) | 13,529 | (5)(7) | ||||||||||||||
Total liabilities | 981,956 | 9,515 | 991,471 | (8) | 990,002 | 19,802 | 1,009,804 | (8) | ||||||||||||||||
Minority interests in consolidated subsidiaries | 76 | — | 76 | 5 | — | 5 | ||||||||||||||||||
Net assets, net of tax effect (non-GAAP) | $ | 38,902 | $ | 1,192 | $ | 40,094 | (9) | $ | 32,268 | $ | (3,875 | ) | $ | 28,393 | (9) | |||||||||
Fair value adjustments | (1,192 | ) | 3,875 | |||||||||||||||||||||
Total stockholders’ equity (GAAP) | $ | 38,902 | $ | 32,268 | ||||||||||||||||||||
(1) | Each of the amounts listed as a “fair value adjustment” represents the difference between the carrying value reported in our GAAP consolidated balance sheets and our best judgment of the estimated fair value of the listed asset or liability. | |
(2) | The estimated fair value of each of these financial instruments has been computed in accordance with the GAAP fair value guidelines prescribed by SFAS 107, as described in “Notes to Consolidated Financial Statements—Note 19, Fair Value of Financial Instruments.” In Note 19, we also discuss the methodologies and assumptions we use in estimating the fair value of our financial instruments. | |
(3) | Represents the estimated fair value produced by combining the estimated fair value of our guaranty assets as of December 31, 2004 and 2003, respectively, with the estimated fair value of buy-ups. In our GAAP consolidated balance sheets, we report our guaranty assets as a separate line item and include all buy-ups associated with our guaranty assets in “Other assets.” As a result, the GAAP carrying value of our guaranty assets reflects only those arrangements entered |
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into subsequent to our adoption of FIN 45 on January 1, 2003. On a GAAP basis, our guaranty assets totaled $5.9 billion and $4.3 billion as of December 31, 2004 and 2003, respectively, and the associated buy-ups totaled $692 million and $716 million as of December 31, 2004 and 2003, respectively. | ||
(4) | In addition to the $7.1 billion and $6.2 billion of assets included in “Other assets” in the GAAP consolidated balance sheets as of December 31, 2004 and 2003, respectively, the assets included in the estimated fair value of our non-GAAP “other assets” consist primarily of the assets presented on five line items in our GAAP consolidated balance sheets, consisting of advances to lenders, accrued interest receivable, partnership investments, acquired property, net, and deferred tax assets, which together totaled $24.9 billion in 2004 and $21.0 billion in 2003, in both the GAAP consolidated balance sheets and the non-GAAP supplemental consolidated balance sheets for those periods. In addition, we subtract from our GAAP other assets the carrying value of the buy-ups associated with our guaranty obligation because we combine the guaranty asset with the associated buy-ups when we determine the fair value of the asset. | |
(5) | The fair value of other assets and other liabilities generally approximates the carrying value of these assets for purposes of GAAP. We assume that other deferred assets and liabilities, consisting of prepaid expenses and deferred charges such as deferred debt issuance costs, have no fair value. We adjust the GAAP-basis deferred taxes for purposes of each of our non-GAAP supplemental consolidated fair value balance sheets to include estimated income taxes on the difference between our non-GAAP supplemental consolidated fair value balance sheets net assets, including deferred taxes from the GAAP consolidated balance sheets, and our GAAP consolidated balance sheets stockholders’ equity. To the extent the adjusted deferred taxes are a net asset, this amount is included in the fair value of other assets. If the adjusted deferred taxes are a net liability, the amount is included in the fair value of other liabilities. | |
(6) | Non-GAAP total assets represent the sum of the estimated fair value of (i) all financial instruments carried at fair value in our GAAP balance sheets, including all financial instruments that are not carried at fair value in our GAAP balance sheets but that are reported at fair value in accordance with SFAS 107 in “Notes to Consolidated Financial Statements—Note 19, Fair Value of Financial Instruments,” (ii) non-GAAP other assets, which include all items listed in footnote 4 that are presented as separate line items in our GAAP consolidated balance sheets rather than being included in our GAAP other assets and (iii) the estimated fair value of credit enhancements, which are not included in “Other assets” in the consolidated balance sheets. | |
(7) | In addition to the $7.2 billion and $7.0 billion of liabilities included in “Other liabilities” in the GAAP consolidated balance sheets as of December 31, 2004 and 2003, respectively, the liabilities included in the estimated fair value of our non-GAAP “other liabilities” consist primarily of the liabilities presented on three line items on our GAAP consolidated balance sheets, consisting of accrued interest payable, reserve for guaranty losses and partnership liabilities, which together totaled $9.3 billion in 2004 and $8.4 billion in 2003, in both our GAAP consolidated balance sheets and our non-GAAP supplemental consolidated balance sheets for those periods. | |
(8) | Non-GAAP total liabilities represent the sum of the estimated fair value of (i) all financial instruments that are carried at fair value in our GAAP balance sheets, including those financial instruments that are not carried at fair value in our GAAP balance sheets but that are reported at fair value in accordance with SFAS 107 in “Notes to Consolidated Financial Statements—Note 19, Fair Value of Financial Instruments,” and (ii) non-GAAP other liabilities, which include all items listed in footnote 6 that are presented as separate line items in our GAAP consolidated balance sheets rather than being included in our GAAP other liabilities. | |
(9) | Represents the estimated fair value of total assets less the estimated fair value of total liabilities, which reconciles to total stockholders’ equity (GAAP). |
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As of December 31, | ||||||||||||
2004 | 2003 | Change | ||||||||||
10-year U.S. Treasury Note Yield | 4.22 | % | 4.25 | % | (0.03 | ) % | ||||||
Implied volatility(2) | 20.1 | % | 22.9 | % | (2.80 | ) % | ||||||
30-year Fannie Mae MBS par coupon rate | 5.21 | % | 5.28 | % | (0.07 | ) % | ||||||
Lehman U.S. MBS Index OAS (in basis points) over U.S. Treasury yield curve | 22.5 | bp | 27.6 | bp | (5.1 | ) bp | ||||||
Lehman U.S. Agency Debt Index OAS (in basis points) over U.S. Treasury yield curve | 32.2 | bp | 36.9 | bp | (4.7 | ) bp |
(1) | Information obtained from Lehman Live and Bloomberg. | |
(2) | Implied volatility for an interest rate swaption with a 3-year option on a 10-year final maturity. |
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• | Capital Transactions, Net. Capital transactions include our issuances of common and preferred stock, our repurchases of stock and our payment of dividends. Cash we receive from the issuance of preferred and common stock results in an increase in the fair value of our net assets, while repurchases of stock and dividends we pay on our stock reduce the fair value of our net assets. | |
• | Estimated Net Interest Income from OAS. OAS income represents the estimated net interest income generated during the current period that is attributable to the market spread between the yields on our mortgage-related assets and the yields on our debt during the period, calculated on an option-adjusted basis. | |
• | Guaranty Fees, Net. Guaranty fees, net, represent the net cash receipts during the reported period related to our guaranty business, and are generally calculated as the difference between the contractual guaranty fees we receive during the period and the expenses we incur during the period that are associated with our guaranty business. Changes in guaranty fees, net, result from changes in portfolio size and composition, changes in the credit quality of the underlying assets and changes in the market spreads for similar instruments. | |
• | Fee and Other Income and Other Expenses, Net. Fee and other income includes miscellaneous fees, such as resecuritization transaction fees and technology-related fees. Other expenses primarily include costs incurred during the period that are associated with the Capital Markets group. | |
• | Return on Risk Positions. Our investment activities expose us to market risks, including duration and convexity risks, yield curve risk, OAS risk and volatility risk. The return on risk positions represents the estimated net increase or decrease in the fair value of our net assets resulting from net exposures related to the market risks we actively manage. We actively manage, or hedge, interest rate risk related to our mortgage investments in order to maintain our interest rate risk exposure within prescribed limits. However, we do not actively manage certain other market risks. Specifically, we do not actively manage themortgage-to-debt OAS or interest rate risk related to our guaranty business, as discussed below. Additional information about credit, market and operational risks and our strategies for managing these types of risks is included in “Risk Management.” | |
• | Mortgage-to-debt OAS. Funding mortgage investments with debt exposes us tomortgage-to-debt OAS risk, which represents basis risk. Basis risk is the risk that interest rates in different market sectors will not move in the same direction or amount at the same time. We generally hold our mortgage investments to generate a spread over our debt on a long-term basis. The fair value of our assets and liabilities can be significantly affected by periodic changes in the net OAS between the mortgage and agency debt sectors. The fair value impact of changes inmortgage-to-debt OAS for a given period represents an estimate of the net unrealized increase or decrease in the fair value of our net assets resulting from fluctuations during the reported period in the net OAS between our mortgage assets and our outstanding debt securities. When themortgage-to-debt OAS on a given mortgage asset increases, or widens, the fair value of the asset will typically decline relative to the debt. |
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• | Change in the Guaranty Business Fair Value. As described more fully in “Notes to Consolidated Financial Statements—Note 19, Fair Value of Financial Instruments,” we calculate the estimated fair value of our existing guaranty business based on the difference between the estimated fair value of the guaranty fees we expect to receive and the estimated fair value of the guaranty obligations we assume. The fair value of both our guaranty assets and our guaranty obligations is highly sensitive to changes in interest rates and credit quality. Changes in interest rates can result in significant periodic fluctuations in the fair value of our net assets. For example, as interest rates decline, the expected prepayment rate on fixed-rate mortgages increases, which lowers the fair value of our existing guaranty business. We do not believe, however, that periodic changes in fair value are the best indication of the long-term value of our guaranty business because they do not take into account future guaranty business activity. Based on our historical experience, we expect that the guaranty fee income generated from future business activity will largely replace any guaranty fee income lost as a result of mortgage prepayments. Accordingly, we do not actively manage or hedge expected changes in the fair value of our guaranty business related to changes in interest rates. To assess the value of our underlying guaranty business, we focus primarily on changes in the fair value of our guaranty business resulting from business growth, changes in the credit quality of existing guaranty arrangements and changes in anticipated future credit performance. |
• | Credit Risk. Credit risk is the risk of financial loss resulting from the failure of a borrower or institutional counterparty to honor its contractual obligations to us and exists primarily in our mortgage credit book of business and derivatives portfolio. | |
• | Market Risk. Market risk represents the exposure to potential changes in the market value of our net assets from changes in prevailing market conditions. A significant market risk we face and actively manage is interest rate risk—the risk of changes in our long-term earnings or in the value of our net assets due to changes in interest rates. | |
• | Operational Risk. Operational risk relates to the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events. | |
• | Liquidity Risk. Liquidity risk is the risk to our earnings and capital arising from an inability to meet our cash obligations in a timely manner. |
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• | evaluating and, where appropriate, recommending for Board approval enterprise-wide risk management policies, metrics and limits consistent with our mission and our safety and soundness; | |
• | reviewing policies and procedures designed to: (i) define, measure, identify and report on credit, market, liquidity and operational risk; and (ii) establish and communicate risk management controls throughout the company; | |
• | overseeing compliance with all enterprise-wide risk management policies; | |
• | overseeing the Chief Risk Office; and | |
• | reviewing the sufficiency of personnel, systems and other risk management capabilities. |
• | monitoring aggregated risk exposure; | |
• | discussing emerging risk issues; | |
• | reviewing proposed risk limits; | |
• | approving the risk aspects of significant new business initiatives; and |
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• | approving and managing risk policies with corporate-wide or significant business unit implications. |
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As of December 31, 2004 | ||||||||||||||||||||||||
Single-Family | Multifamily | Total | ||||||||||||||||||||||
Conventional(1) | Government(2) | Conventional(1) | Government(2) | Conventional(1) | Government(2) | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Mortgage portfolio:(3) | ||||||||||||||||||||||||
Mortgage loans(4) | $ | 345,575 | $ | 10,112 | $ | 43,396 | $ | 1,074 | $ | 388,971 | $ | 11,186 | ||||||||||||
Fannie Mae MBS(4) | 341,768 | 1,239 | 505 | 892 | 342,273 | 2,131 | ||||||||||||||||||
Agency mortgage-related securities(4)(5) | 37,422 | 4,273 | — | 68 | 37,422 | 4,341 | ||||||||||||||||||
Mortgage revenue bonds | 6,344 | 4,951 | 8,037 | 2,744 | 14,381 | 7,695 | ||||||||||||||||||
Other mortgage-related securities(6) | 108,082 | 669 | 12 | 46 | 108,094 | 715 | ||||||||||||||||||
Total mortgage portfolio | 839,191 | 21,244 | 51,950 | 4,824 | 891,141 | 26,068 | ||||||||||||||||||
Fannie Mae MBS held by third parties(7) | 1,319,066 | 32,337 | 54,639 | 2,005 | 1,373,705 | 34,342 | ||||||||||||||||||
Book of business | 2,158,257 | 53,581 | 106,589 | 6,829 | 2,264,846 | 60,410 | ||||||||||||||||||
Other(8) | 346 | — | 14,111 | 368 | 14,457 | 368 | ||||||||||||||||||
Total mortgage credit book of business | $ | 2,158,603 | $ | 53,581 | $ | 120,700 | $ | 7,197 | $ | 2,279,303 | $ | 60,778 | ||||||||||||
As of December 31, 2003 | ||||||||||||||||||||||||
Single-Family | Multifamily | Total | ||||||||||||||||||||||
Conventional(1) | Government(2) | Conventional(1) | Government(2) | Conventional(1) | Government(2) | |||||||||||||||||||
(Restated) | ||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Mortgage portfolio:(3) | ||||||||||||||||||||||||
Mortgage loans(4) | $ | 355,200 | $ | 7,284 | $ | 33,945 | $ | 1,204 | $ | 389,145 | $ | 8,488 | ||||||||||||
Fannie Mae MBS(4) | 402,079 | 1,933 | 412 | 1,498 | 402,491 | 3,431 | ||||||||||||||||||
Agency mortgage-related securities(4)(5) | 30,672 | 7,235 | — | 68 | 30,672 | 7,303 | ||||||||||||||||||
Mortgage revenue bonds | 6,242 | 5,983 | 5,828 | 2,306 | 12,070 | 8,289 | ||||||||||||||||||
Other mortgage-relatedsecurities(6) | 46,714 | 169 | 42 | 54 | 46,756 | 223 | ||||||||||||||||||
Total mortgage portfolio | 840,907 | 22,604 | 40,227 | 5,130 | 881,134 | 27,734 | ||||||||||||||||||
Fannie Mae MBS held by third parties(7) | 1,200,222 | 38,487 | 59,403 | 2,408 | 1,259,625 | 40,895 | ||||||||||||||||||
Book of business | 2,041,129 | 61,091 | 99,630 | 7,538 | 2,140,759 | 68,629 | ||||||||||||||||||
Other(8) | 330 | — | 12,346 | 492 | 12,676 | 492 | ||||||||||||||||||
Total mortgage credit book of business | $ | 2,041,459 | $ | 61,091 | $ | 111,976 | $ | 8,030 | $ | 2,153,435 | $ | 69,121 | ||||||||||||
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As of December 31, 2002 | ||||||||||||||||||||||||
Single-Family | Multifamily | Total | ||||||||||||||||||||||
Conventional(1) | Government(2) | Conventional(1) | Government(2) | Conventional(1) | Government(2) | |||||||||||||||||||
(Restated) | ||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Mortgage portfolio:(3) | ||||||||||||||||||||||||
Mortgage loans(4) | $ | 295,457 | $ | 6,404 | $ | 19,485 | $ | 1,898 | $ | 314,942 | $ | 8,302 | ||||||||||||
Fannie Mae MBS(4) | 374,555 | 3,230 | 542 | 2,056 | 375,097 | 5,286 | ||||||||||||||||||
Agency mortgage-related securities(4)(5) | 32,218 | 16,042 | — | 85 | 32,218 | 16,127 | ||||||||||||||||||
Mortgage revenue bonds | 6,378 | 7,614 | 3,728 | 1,930 | 10,106 | 9,544 | ||||||||||||||||||
Other mortgage-related securities(6) | 27,938 | 75 | 69 | 75 | 28,007 | 150 | ||||||||||||||||||
Total mortgage portfolio | 736,546 | 33,365 | 23,824 | 6,044 | 760,370 | 39,409 | ||||||||||||||||||
Fannie Mae MBS held by third parties(7) | 950,690 | 36,225 | 50,772 | 2,752 | 1,001,462 | 38,977 | ||||||||||||||||||
Book of business | 1,687,236 | 69,590 | 74,596 | 8,796 | 1,761,832 | 78,386 | ||||||||||||||||||
Other(8) | 576 | — | 10,906 | 545 | 11,482 | 545 | ||||||||||||||||||
Total mortgage credit book of business | $ | 1,687,812 | $ | 69,590 | $ | 85,502 | $ | 9,341 | $ | 1,773,314 | $ | 78,931 | ||||||||||||
(1) | Refers to mortgage loans and mortgage-related securities that are not guaranteed or insured by the U.S. government or any of its agencies. | |
(2) | Refers to mortgage loans and mortgage-related securities guaranteed or insured by the U.S. government or one of its agencies. | |
(3) | Mortgage portfolio data is reported based on unpaid principal balance. | |
(4) | Mortgage loan data includes mortgage-related securities that were consolidated and reported in our consolidated balance sheets as loans of $152.7 billion, $162.5 billion and $135.8 billion as of December 31, 2004, 2003 and 2002, respectively. | |
(5) | Includes mortgage-related securities issued by Freddie Mac and Ginnie Mae. | |
(6) | Includes mortgage-related securities issued by entities other than Fannie Mae, Freddie Mac or Ginnie Mae. | |
(7) | Includes Fannie Mae MBS held by third-party investors. The principal balance of resecuritized Fannie Mae MBS is included only once. | |
(8) | Includes additional single-family and multifamily credit enhancements that we provide not otherwise reflected in the table. |
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• | primary mortgage insurance; | |
• | a seller’s agreement to repurchase or replace any mortgage loan in default (for such period and under such circumstances as we may require); or | |
• | retention by the seller of at least a 10% participation interest in the mortgage loans. |
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Percent of Book of Business(1) | ||||||||||||
As of December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Originalloan-to-value ratio: | ||||||||||||
<= 60.00 | 26 | % | 26 | % | 20 | % | ||||||
60.01% to 70.00% | 17 | 17 | 15 | |||||||||
70.01% to 80.00% | 40 | 39 | 42 | |||||||||
80.01% to 90.00% | 9 | 10 | 13 | |||||||||
90.01% to 100.0% | 8 | 8 | 10 | |||||||||
Greater than 100% | — | — | — | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Weighted average | 70 | % | 70 | % | 73 | % | ||||||
Estimatedmark-to-marketloan-to-value ratio:(2) | ||||||||||||
<= 60.00 | 53 | % | 43 | % | 43 | % | ||||||
60.01% to 70.00% | 20 | 22 | 20 | |||||||||
70.01% to 80.00% | 18 | 24 | 25 | |||||||||
80.01% to 90.00% | 6 | 8 | 9 | |||||||||
90.01% to 100.0% | 3 | 3 | 3 | |||||||||
Greater than 100% | — | — | — | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Weighted average | 57 | % | 60 | % | 61 | % | ||||||
Average loan amount | $ | 125,812 | $ | 122,901 | $ | 111,169 | ||||||
Product type:(3) | ||||||||||||
Fixed-rate: | ||||||||||||
Long-term | 64 | % | 64 | % | 70 | % | ||||||
Intermediate-term | 24 | 27 | 23 | |||||||||
Interest-only | — | — | — | |||||||||
Total fixed-rate | 88 | 91 | 93 | |||||||||
Adjustable-rate: | ||||||||||||
Interest-only | 2 | 1 | — | |||||||||
Negative-amortizing | 1 | 1 | 2 | |||||||||
Other ARMs | 9 | 7 | 5 | |||||||||
Total adjustable-rate | 12 | 9 | 7 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
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Percent of Book of Business(1) | ||||||||||||
As of December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Number of property units: | ||||||||||||
1 unit | 96 | % | 96 | % | 96 | % | ||||||
2-4 units | 4 | 4 | 4 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Property type: | ||||||||||||
Single-family homes | 93 | % | 93 | % | 94 | % | ||||||
Condo/Co-op | 7 | 7 | 6 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Occupancy type: | ||||||||||||
Primary residence | 92 | % | 92 | % | 93 | % | ||||||
Second/vacation home | 3 | 3 | 3 | |||||||||
Investor | 5 | 5 | 4 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Credit score: | ||||||||||||
< 620 | 5 | % | 5 | % | 6 | % | ||||||
620 to < 660 | 11 | 11 | 11 | |||||||||
660 to < 700 | 18 | 18 | 18 | |||||||||
700 to < 740 | 23 | 23 | 22 | |||||||||
>= 740 | 41 | 40 | 36 | |||||||||
Not available | 2 | 3 | 7 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Weighted average | 719 | 717 | 714 | |||||||||
Loan purpose: | ||||||||||||
Purchase | 31 | % | 28 | % | 37 | % | ||||||
Cash-out refinance | 30 | 30 | 27 | |||||||||
Other refinance | 39 | 42 | 36 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Geographic concentration:(4) | ||||||||||||
Midwest | 17 | % | 17 | % | 18 | % | ||||||
Northeast | 19 | 18 | 19 | |||||||||
Southeast | 22 | 22 | 21 | |||||||||
Southwest | 16 | 16 | 16 | |||||||||
West | 26 | 27 | 26 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
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Percent of Book of Business(1) | ||||||||||||
As of December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Origination year: | ||||||||||||
<= 1994 | 2 | % | 4 | % | 8 | % | ||||||
1995 | — | 1 | 1 | |||||||||
1996 | — | 1 | 2 | |||||||||
1997 | 1 | 1 | 2 | |||||||||
1998 | 2 | 3 | 11 | |||||||||
1999 | 2 | 2 | 7 | |||||||||
2000 | 1 | 1 | 4 | |||||||||
2001 | 6 | 9 | 27 | |||||||||
2002 | 17 | 25 | 38 | |||||||||
2003 | 46 | 53 | — | |||||||||
2004 | 23 | — | — | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
(1) | Percentages calculated based on unpaid principal balance of loans as of the end of each period. | |
(2) | The methodology used to estimate themark-to-marketloan-to-value ratio was implemented in 2004. | |
(3) | Long-term fixed-rate consists of mortgage loans with contractual maturities greater than 15 years. Intermediate-term fixed-rate consists of mortgage loans with contractual maturities equal to or less than 15 years. | |
(4) | Midwest includes IL, IN, IA, MI, MN, NE, ND, OH, SD and WI. Northeast includes CT, DE, ME, MA, NH, NJ, NY, PA, PR, RI, VT and VI. Southeast includes AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA and WV. Southwest includes AZ, AR, CO, KS, LA, MO, NM, OK, TX and UT. West includes AK, CA, GU, HI, ID, MT, NV, OR, WA and WY. |
Percent of Business Volume(1) | ||||||||||||
For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Originalloan-to-value ratio: | ||||||||||||
<= 60.00 | 23 | % | 29 | % | 23 | % | ||||||
60.01% to 70.00% | 16 | 18 | 16 | |||||||||
70.01% to 80.00% | 43 | 38 | 42 | |||||||||
80.01% to 90.00% | 8 | 8 | 11 | |||||||||
90.01% to 100.0% | 10 | 7 | 8 | |||||||||
Greater than 100% | — | — | — | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Weighted average | 71 | % | 68 | % | 71 | % | ||||||
Average loan amount | $ | 158,759 | $ | 153,461 | $ | 145,566 | ||||||
Product type:(2) | ||||||||||||
Fixed-rate: | ||||||||||||
Long-term | 62 | % | 63 | % | 66 | % | ||||||
Intermediate-term | 16 | 27 | 25 | |||||||||
Interest-only | — | — | — | |||||||||
Total fixed-rate | 78 | 90 | 91 | |||||||||
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Percent of Business Volume(1) | ||||||||||||
For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Adjustable-rate: | ||||||||||||
Interest-only | 5 | 1 | 1 | |||||||||
Negative-amortizing | 2 | 1 | 1 | |||||||||
Other ARMs | 15 | 8 | 7 | |||||||||
Total adjustable-rate | 22 | 10 | 9 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Number of property units: | �� | |||||||||||
1 unit | 96 | % | 96 | % | 96 | % | ||||||
2-4 units | 4 | 4 | 4 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Property type: | ||||||||||||
Single-family detached | 91 | % | 93 | % | 93 | % | ||||||
Condo/Co-op | 9 | 7 | 7 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Occupancy type: | ||||||||||||
Primary residence | 91 | % | 93 | % | 92 | % | ||||||
Second/vacation home | 4 | 3 | 3 | |||||||||
Investor | 5 | 4 | 5 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Credit score: | ||||||||||||
< 620 | 6 | % | 4 | % | 6 | % | ||||||
620 to < 660 | 12 | 10 | 11 | |||||||||
660 to < 700 | 19 | 18 | 18 | |||||||||
700 to < 740 | 24 | 24 | 23 | |||||||||
>= 740 | 39 | 44 | 41 | |||||||||
Not available | — | — | 1 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Weighted average | 715 | 721 | 717 | |||||||||
Loan purpose: | ||||||||||||
Purchase | 43 | % | 22 | % | 30 | % | ||||||
Cash-out refinance | 29 | 32 | 32 | |||||||||
Other refinance | 28 | 46 | 38 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Geographic concentration:(3) | ||||||||||||
Midwest | 17 | % | 18 | % | 20 | % | ||||||
Northeast | 19 | 18 | 18 | |||||||||
Southeast | 22 | 20 | 20 | |||||||||
Southwest | 14 | 14 | 15 | |||||||||
West | 28 | 30 | 27 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
(1) | Percentages calculated based on unpaid principal balance of loans at time of acquisition. |
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(2) | Long-term fixed-rate consists of mortgage loans with contractual maturities greater than 15 years. Intermediate-term fixed-rate consists of mortgage loans with contractual maturities equal to or less than 15 years. | |
(3) | See footnote 4 to Table 27 for states included in each geographic region. |
• | Loan-to-value (“LTV”) ratio. The LTV ratio is the ratio, at any point in time, of the unpaid principal balance of a mortgage loan to the value of the property that serves as collateral for the loan (expressed as a percentage). LTV ratio is a strong predictor of credit performance. In most cases, the original LTV is based on the appraised value reported to us at the time of acquisition of the loan. The aggregate current or estimatedmark-to-market LTV is based on an internal valuation model we use to estimate periodic changes in home values. Assuming all other factors are equal, the likelihood of default and the gross severity of a loss in the event of default are typically lower as the LTV ratio decreases. | |
• | Product type. Product type is defined by the nature of the interest rate applicable to the mortgage (fixed for the duration of the loan or adjustable subject to contractual terms) and by the maturity of the loan. We generally divide our Single-Family business into three primary categories: long-term, fixed-rate mortgages with original terms of greater than 15 years; intermediate-term, fixed-rate mortgages with original terms of 15 years or less; and ARMs of any term. During 2004 and 2005, there was a proliferation of alternative product types, includingnegative-amortizing loans and interest-only loans.Negative-amortizing loans allow the borrower to make monthly payments that are less than the interest actually accrued for the period. The unpaid interest is added to the principal balance of the loan, which increases the outstanding loan balance.Negative-amortizing loans are typically adjustable-rate mortgage loans. Interest-only loans allow the borrower to pay only the monthly interest due, and none of the principal, for a fixed term. After the end of that term, usually five to ten years, the borrower can choose to refinance, pay the principal balance in a lump sum, or begin paying the monthly scheduled principal due on the loan, which results in a higher monthly payment at that time. Interest-only loans can be adjustable-rate or fixed-rate mortgage loans. Whilenegative-amortizing and interest-only loans have been offered by lenders for some time, we began separately reporting and more closely monitoring them as their prevalence increased in 2004 and 2005. |
• | Number of units. We classify mortgages secured by housing with four or fewer living units as single- family. Mortgages on one-unit properties tend to have lower credit risk than mortgages on multiple-unit properties, such as duplexes, all other factors held equal. Over 95% of our single-family mortgage credit book of business consists of loans secured by one-unit properties. | |
• | Property type. We evaluate the underlying type of property that secures a mortgage loan. Condominiums are generally considered to have higher credit risk than single-family detached properties. Condominiums are often more difficult to resell than single-family detached properties, and they historically have exhibited greater volatility in home price trends. |
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• | Occupancy type. Borrowers may purchase a home as a primary residence, a second or vacation home, or an investment property. Assuming all other factors are equal, mortgages on properties occupied by the borrower as a primary or secondary residence tend to have lower credit risk than mortgages on investment properties. | |
• | Credit score. Credit score is a measure often used by the financial services industry, including our company, to assess borrower credit quality. Credit scores are generated by credit repositories and calculated based on proprietary statistical models that evaluate many types of information on a borrower’s credit report and predict the likelihood that a borrower will repay future obligations as expected. FICO® scores, developed by Fair Isaac Corporation, are commonly used credit scores. FICO scores, as reported by the credit repositories, may range from a low of 300 to a high of 850. Based on Fair Isaac Corporation statistical information, a higher FICO score typically indicates a lesser degree of credit risk. |
• | Loan purpose. Loan purpose indicates how the borrower intends to use the funds from a mortgage loan. We designate the loan purpose as purchase, cash-out refinance or other refinance. The funds in a purchase transaction are used to acquire a property. In addition to paying off an existing first mortgage lien, the funds in a cash-out refinance transaction also may be used for other purposes, including paying off subordinate mortgage liens and providing unrestricted cash proceeds to the borrower. Cash-out refinancings have a higher risk of default. All other refinance transactions are defined as other re-financings. We also may disclose certain loans that were modified prior to our acquisition as refinanced loans. | |
• | Geographic concentration. Local economic conditions affect borrowers’ ability to repay loans and the value of the collateral underlying a loan, if all other factors are equal. We analyze geographic exposure at a variety of levels of geographic aggregation, including at the regional level. Geographic diversification reduces mortgage credit risk. | |
• | Loan age. We monitor year of origination and loan age, which is defined as the number of years since origination. Statistically, the peak ages for default are currently from two to six years after origination. |
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• | repayment plans in which borrowers repay past due principal and interest over a reasonable period of time through a temporarily higher monthly payment; | |
• | loan modifications in which past due interest amounts, net of any borrower contributions, are added to the loan principal amount and recovered over the remaining life of the loan, and other loan adjustments; | |
• | accepting deeds in lieu of foreclosure whereby the borrower signs over title to the property without the added expense of a foreclosure proceeding; and | |
• | preforeclosure sales in which the borrower, working with the servicer, sells the home and pays off all or part of the outstanding loan, accrued interest and other expenses from the sale proceeds. |
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For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
(Number of loans) | ||||||||||||
Modifications(1) | 22,591 | 17,119 | 14,298 | |||||||||
Repayment plans and long-term forbearances | 11,001 | 10,521 | 6,779 | |||||||||
Pre-foreclosure sales | 2,575 | 2,052 | 1,513 | |||||||||
Deeds in lieu of foreclosure | 330 | 320 | 192 | |||||||||
Total number of problem loan workouts(2) | 36,497 | 30,012 | 22,782 | |||||||||
(1) | Modifications include troubled debt restructurings, which result in concessions to borrowers, and other modifications to the contractual terms of the loan that do not result in concessions to the borrower. | |
(2) | For each of the years ended December 31, 2004, 2003 and 2002, represents approximately 0.2% of the total number of loans in our conventional single-family mortgage credit book. |
• | the local general partner’s ability to meet obligations; | |
• | the value of the property; |
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• | the ability to restructure the debt; | |
• | the financial and workout capacity of the syndicator partner; and | |
• | the strength of the market or submarket. |
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As of December 31, | ||||||||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||
Serious | Serious | Serious | ||||||||||||||||||||||
Book | Delinquency | Book | Delinquency | Book | Delinquency | |||||||||||||||||||
Outstanding(1) | Rate(2) | Outstanding(1) | Rate(2) | Outstanding(1) | Rate(2) | |||||||||||||||||||
Conventional single-family loans: | ||||||||||||||||||||||||
Credit enhanced | 19 | % | 1.84 | % | 21 | % | 1.65 | % | 27 | % | 1.29 | % | ||||||||||||
Non-credit enhanced | 81 | 0.33 | 79 | 0.30 | 73 | 0.31 | ||||||||||||||||||
Total conventional single-family loans | 100 | % | 0.63 | % | 100 | % | 0.60 | % | 100 | % | 0.57 | % | ||||||||||||
Multifamily loans: | ||||||||||||||||||||||||
Credit enhanced | 95 | % | 0.11 | % | 95 | % | 0.29 | % | 92 | % | 0.08 | % | ||||||||||||
Non-credit enhanced | 5 | 0.13 | 5 | 0.22 | 8 | 0.02 | ||||||||||||||||||
Total multifamily loans | 100 | % | 0.11 | % | 100 | % | 0.29 | % | 100 | % | 0.08 | % | ||||||||||||
(1) | Reported based on unpaid principal balance. | |
(2) | Reported based on number of loans for single-family and unpaid principal balance for multifamily. |
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As of December 31, | ||||||||||||||||
2004 | 2003 | 2002 | 2001 | |||||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||||||
(Dollars in millions) | ||||||||||||||||
Nonperforming loans: | ||||||||||||||||
Nonaccrual loans | $ | 7,987 | $ | 7,742 | $ | 6,303 | $ | 4,664 | ||||||||
Troubled debt restructurings(1) | 816 | 673 | 580 | 503 | ||||||||||||
Total nonperforming loans | $ | 8,803 | $ | 8,415 | $ | 6,883 | $ | 5,167 | ||||||||
Interest on nonperforming loans: | ||||||||||||||||
Interest income forgone(2) | $ | 188 | $ | 192 | $ | 149 | $ | 102 | ||||||||
Interest income recognized during year(3) | 381 | 376 | 331 | 265 | ||||||||||||
Accruing loans past due 90 days or more(4) | $ | 187 | $ | 225 | $ | 251 | $ | 301 |
(1) | Troubled debt restructurings include loans whereby the contractual terms have been modified that result in concessions to borrowers experiencing financial difficulties. | |
(2) | Forgone interest income represents the amount of interest income that would have been recorded during the year on nonperforming loans as of December 31 had the loans performed according to their contractual terms. | |
(3) | Represents interest income recognized during the year on loans classified as nonperforming as of December 31. | |
(4) | Recorded investment of loans as of December 31 that are 90 days or more past due and continuing to accrue interest include loans insured or guaranteed by the government and loans where we have recourse against the seller of the loan in the event of a default. |
For the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||
Single- | Single- | Single- | ||||||||||||||||||||||||||||||||||
Family | Multifamily | Total | Family | Multifamily | Total | Family | Multifamily | Total | ||||||||||||||||||||||||||||
(Restated) | (Restated) | |||||||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||
Charge-offs, net of recoveries | $ | 189 | $ | 21 | $ | 210 | $ | 196 | $ | 5 | $ | 201 | $ | 133 | $ | 18 | $ | 151 | ||||||||||||||||||
Foreclosed property expense (income) | (17 | ) | 28 | 11 | (10 | ) | (2 | ) | (12 | ) | (10 | ) | (1 | ) | (11 | ) | ||||||||||||||||||||
Credit-related losses | $ | 172 | $ | 49 | $ | 221 | $ | 186 | $ | 3 | $ | 189 | $ | 123 | $ | 17 | $ | 140 | ||||||||||||||||||
Charge-off ratio (basis points)(1) | 0.9 | bp | 1.7 | bp | 0.9 | bp | 1.0 | bp | 0.5 | bp | 1.0 | bp | 0.8 | bp | 2.1 | bp | 0.9 | bp | ||||||||||||||||||
Credit loss ratio (basis points)(2) | 0.8 | bp | 4.0 | bp | 1.0 | bp | 1.0 | bp | 0.3 | bp | 0.9 | bp | 0.7 | bp | 1.9 | bp | 0.8 | bp |
(1) | Represents charge-offs, net of recoveries, divided by average mortgage credit book of business. | |
(2) | Represents credit-related losses divided by average mortgage credit book of business. |
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As of December 31, | ||||||||
2004 | 2003 | |||||||
(Restated) | ||||||||
(Dollars in millions) | ||||||||
Gross credit loss sensitivity(2) | $ | 2,266 | $ | 2,189 | ||||
Less: Projected credit risk sharing proceeds | 1,179 | 1,125 | ||||||
Net credit loss sensitivity | $ | 1,087 | $ | 1,064 | ||||
Single-family whole loans and Fannie Mae MBS | $ | 1,980,789 | $ | 1,940,849 | ||||
Single-family net credit loss sensitivity as a percentage of single-family whole loans and Fannie Mae MBS | 0.05 | % | 0.05 | % |
(1) | Represents total economic credit losses, which include net charge-offs/recoveries, foreclosed property expenses, forgone interest and the cost of carrying foreclosed properties. |
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(2) | Measures the gross sensitivity of our expected future credit losses to an immediate 5% decline in home values for first lien single-family whole loans we own or that back Fannie Mae MBS. After the initial shock, we estimate home price growth rates return to the rate projected by our credit pricing models. |
For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
(Number of properties) | ||||||||||||
Beginning inventory of foreclosed properties (REO)(1) | 13,749 | 9,975 | 7,073 | |||||||||
Geographic analysis of acquisitions:(2) | ||||||||||||
Midwest | 10,149 | 7,384 | 4,743 | |||||||||
Northeast | 2,318 | 1,997 | 2,053 | |||||||||
Southeast | 10,275 | 8,539 | 5,615 | |||||||||
Southwest | 8,422 | 6,640 | 4,462 | |||||||||
West | 1,739 | 2,235 | 2,629 | |||||||||
Total properties acquired through foreclosure | 32,903 | 26,795 | 19,502 | |||||||||
Dispositions of REO | 28,291 | 23,021 | 16,600 | |||||||||
Ending inventory of foreclosed properties (REO)(1) | 18,361 | 13,749 | 9,975 | |||||||||
(1) | Includes deeds in lieu of foreclosure. | |
(2) | See footnote 4 to Table 27 for states included in each geographic region. |
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As of December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
(Dollars in millions) | ||||||||||||
Allowance for loan losses: | ||||||||||||
Beginning balance | $ | 290 | $ | 216 | $ | 168 | ||||||
Provision | 174 | 187 | 128 | |||||||||
Charge-offs(1) | (321 | ) | (270 | ) | (175 | ) | ||||||
Recoveries | 131 | 72 | 27 | |||||||||
Increase from the reserve for guaranty losses(2) | 75 | 85 | 68 | |||||||||
Ending balance | $ | 349 | $ | 290 | $ | 216 | ||||||
Reserve for guaranty losses: | ||||||||||||
Beginning balance | $ | 313 | $ | 223 | $ | 138 | ||||||
Provision | 178 | 178 | 156 | |||||||||
Charge-offs | (24 | ) | (7 | ) | (11 | ) | ||||||
Recoveries | 4 | 4 | 8 | |||||||||
Decrease to the allowance for loan losses(2) | (75 | ) | (85 | ) | (68 | ) | ||||||
Ending balance | $ | 396 | $ | 313 | $ | 223 | ||||||
Combined allowance for loan losses and reserve for guaranty losses: | ||||||||||||
Beginning balance | $ | 603 | $ | 439 | $ | 306 | ||||||
Provision | 352 | 365 | 284 | |||||||||
Charge-offs(1) | (345 | ) | (277 | ) | (186 | ) | ||||||
Recoveries | 135 | 76 | 35 | |||||||||
Ending balance | $ | 745 | $ | 603 | $ | 439 | ||||||
Balance at end of each period attributable to: | ||||||||||||
Single-family | $ | 644 | $ | 516 | $ | 374 | ||||||
Multifamily | 101 | 87 | 65 | |||||||||
Total | $ | 745 | $ | 603 | $ | 439 | ||||||
Percent of combined allowance and reserve in each category to related mortgage credit book of business:(3) | ||||||||||||
Single-family | 0.03 | % | 0.02 | % | 0.02 | % | ||||||
Multifamily | 0.08 | 0.07 | 0.07 | |||||||||
Total | 0.03 | 0.03 | 0.02 |
(1) | Includes accrued interest of $29 million, $29 million and $24 million for the years ended December 31, 2004, 2003 and 2002, respectively. | |
(2) | Includes decrease in reserve for guaranty losses and increase in allowance for loan losses due to the purchase ofdelinquent loans from MBS pools. | |
(3) | Represents ratio of combined allowance and reserve balance by loan type to mortgage credit book of business by loan type. |
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• | establishment and observance of counterparty eligibility standards appropriate to each exposure type and level; | |
• | establishment of credit limits; | |
• | requiring collateralization of exposures where appropriate; and | |
• | exposure monitoring and management. |
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As of December 31, 2004 | ||||||||||||||||||||||||
Credit Rating(1) | ||||||||||||||||||||||||
AAA | AA | A | Subtotal | Other(2) | Total | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Credit loss exposure(3) | $ | 57 | $ | 3,200 | $ | 3,182 | $ | 6,439 | $ | 88 | $ | 6,527 | ||||||||||||
Collateral held(4) | — | 2,984 | 3,001 | 5,985 | — | 5,985 | ||||||||||||||||||
Exposure net of collateral | $ | 57 | $ | 216 | $ | 181 | $ | 454 | $ | 88 | $ | 542 | ||||||||||||
Additional information: | ||||||||||||||||||||||||
Notional amount | $ | 842 | $ | 327,895 | $ | 360,625 | $ | 689,362 | $ | 732 | $ | 690,094 | ||||||||||||
Number of counterparties | 3 | 12 | 8 | 23 |
As of December 31, 2003 | ||||||||||||||||||||||||
Credit Rating(1) | ||||||||||||||||||||||||
AAA | AA | A | Subtotal | Other(2) | Total | |||||||||||||||||||
(Restated) | ||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Credit loss exposure(3) | $ | 18 | $ | 3,422 | $ | 3,515 | $ | 6,955 | $ | 103 | $ | 7,058 | ||||||||||||
Collateral held(4) | — | 3,126 | 3,437 | 6,563 | — | 6,563 | ||||||||||||||||||
Exposure net of collateral | $ | 18 | $ | 296 | $ | 78 | $ | 392 | $ | 103 | $ | 495 | ||||||||||||
Additional information: | ||||||||||||||||||||||||
Notional amount | $ | 1,829 | $ | 489,714 | $ | 547,086 | $ | 1,038,629 | $ | 379 | $ | 1,039,008 | ||||||||||||
Number of counterparties | 3 | 12 | 8 | 23 |
(1) | We manage collateral requirements based on the lower credit rating of the legal entity as issued by Standard & Poor’s and Moody’s. The credit rating reflects the equivalent Standard & Poor’s rating for any ratings based on Moody’s scale. | |
(2) | Includes MBS options, mortgage insurance contracts and swap credit enhancements accounted for as derivatives. | |
(3) | Represents the exposure to credit loss on derivative instruments, which is estimated by calculating the cost, on a present value basis, to replace all outstanding contracts in a gain position. Derivative gains and losses with the same counterparty are presented net where a legal right of offset exists under an enforceable master settlement agreement. This table excludes mortgage commitments accounted for as derivatives. | |
(4) | Represents the collateral held as of December 31, 2004 and 2003, adjusted for the collateral transferred subsequent to December 31 based on credit loss exposure limits on derivative instruments as of December 31, 2004 and 2003. Settlement dates vary by counterparty and range from one to three business days following the credit loss exposure valuation dates of December 31, 2004 and 2003. The value of the collateral is reduced in accordance with counterparty agreements to help ensure recovery of any loss through the disposition of the collateral. We posted non-cash collateral of $56 million and $301 million related to our counterparties’ credit exposure to us as of December 31, 2004 and 2003, respectively. |
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• | Minimum Collateral Threshold. Our derivatives counterparties are obligated to post collateral when exposure to credit losses exceeds agreed-upon thresholds that are based on credit ratings. The amount of collateral generally must equal the excess of exposure over the threshold amount. | |
• | Collateral Valuation Percentages. We require counterparties to post specific types of collateral to meet their collateral requirements. The collateral posted by our counterparties as of December 31, 2004 consisted of cash, U.S. Treasury securities, agency debt and agency mortgage-related securities. We assign each type of collateral a specific valuation percentage based on its relative risk. In cases where the valuation percentage for a certain type of collateral is less than 100%, we require counterparties to post an additional amount of collateral to meet their requirements. | |
• | Over-collateralization Based on Low Credit Ratings. We further reduce our net exposure on derivatives by generally requiring over-collateralization from counterparties whose credit ratings have dropped below predetermined levels. Counterparties with credit ratings falling below these levels must post collateral beyond the amounts previously noted to meet their overall requirements. | |
• | Daily Monitoring Procedures. On a daily basis, we value our derivative collateral positions for each counterparty using both internal and external pricing models, compare the exposure to counterparty limits, and determine whether additional collateral is required. We evaluate any additional exposure to a counterparty beyond our model tolerance level based on our corporate credit policy framework for managing counterparty risk. |
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• | issuing a broad range of both callable and non-callable debt instruments to manage the duration and prepayment risk of expected cash flows of the mortgage assets we own; | |
• | supplementing our issuance of debt with derivative instruments to further reduce duration and prepayment risks; and | |
• | on-going monitoring of our risk positions and actively rebalancing our portfolio of interest rate-sensitive financial instruments to maintain a close match between the duration of our assets and liabilities. |
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• | Rather than issuing a10-year non-callable fixed-rate note, we could issue short-term debt and enter into a10-year interest rate swap with a highly rated counterparty. The derivative counterparty would pay a floating rate of interest to us on the swap that we would use to pay the interest expense on the short-term debt, which we would continue to reissue. We would pay the counterparty a fixed rate of interest on the swap, thus achieving the economics of a10-year fixed-rate note issue. The combination of the pay-fixed interest rate swap and short-term debt serves as a substitute for non-callable fixed-rate debt. | |
• | Similarly, instead of issuing a10-year fixed-rate note callable after three years, we could issue a10-year fixed-rate note and enter into a receive-fixed swaption that would have the same economics as a10-year callable note. If we want to call the debt after three years, the swaption would give us the option to enter into a swap agreement where we would receive a fixed rate of interest from the derivative counterparty over the remaining7-year period that would offset the fixed-rate interest payments on the long-term debt. The combination of the receive-fixed swaption and10-year non-callable note serves as a substitute for callable debt. |
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• | Pay-fixed, receive variable—an agreement whereby we pay a predetermined fixed rate of interest based upon a set notional amount and receive a variable interest payment based upon a stated index, with the index resetting at regular intervals over a specified period of time. These contracts generally increase in value as interest rates rise. | |
• | Receive-fixed, pay variable—an agreement whereby we make a variable interest payment based upon a stated index, with the index resetting at regular intervals, and receive a predetermined fixed rate of interest based upon a set notional amount and over a specified period of time. These contracts generally increase in value as interest rates fall. | |
• | Basis swap—an agreement that provides for the exchange of variable interest payments, based on notional amounts, tied to two different underlying interest rate indices. |
• | Pay-fixed swaptions—an option that allows us to enter into a pay-fixed, receive variable interest rate swap at some point in the future. These contracts generally increase in value as interest rates rise. | |
• | Receive-fixed swaptions—an option that allows us to enter into a receive-fixed, pay variable interest rate swap at some point in the future. These contracts generally increase in value as interest rates fall. | |
• | Interest rate caps—although an interest rate cap is not an option it has option-like characteristics. It is a contract in which we receive money when a reference interest rate, typically LIBOR, exceeds an agreed-upon referenced strike price (“cap”). The value generally increases as reference interest rates rise. |
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Interest Rate Swaps | Interest Rate Swaptions | |||||||||||||||||||||||||||||||||||
Receive- | Foreign | Receive- | Interest | |||||||||||||||||||||||||||||||||
Pay-Fixed(2) | Fixed(3) | Basis | Currency | Pay-Fixed | Fixed | Rate Caps | Other(4) | Total | ||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||
Notional balance as of December 31, 2002 | $ | 176,712 | $ | 50,870 | $ | 25,425 | $ | 3,932 | $ | 129,425 | $ | 146,200 | $ | 122,419 | $ | 204 | $ | 655,187 | ||||||||||||||||||
Additions | 269,190 | 228,551 | 37,290 | 5,760 | 75,705 | 63,101 | 63,350 | 6,731 | 749,678 | |||||||||||||||||||||||||||
Maturities(5) | (81,525 | ) | (78,192 | ) | (30,412 | ) | (4,497 | ) | (41,150 | ) | (68,106 | ) | (55,419 | ) | (6,556 | ) | (365,857 | ) | ||||||||||||||||||
Notional balance as of December 31, 2003 | $ | 364,377 | $ | 201,229 | $ | 32,303 | $ | 5,195 | $ | 163,980 | $ | 141,195 | $ | 130,350 | $ | 379 | $ | 1,039,008 | ||||||||||||||||||
Additions | 138,442 | 207,269 | 33,700 | 13,650 | 31,575 | 49,145 | 17,800 | 5,243 | 496,824 | |||||||||||||||||||||||||||
Maturities(5) | (360,802 | ) | (327,305 | ) | (33,730 | ) | (7,392 | ) | (24,850 | ) | (42,770 | ) | (44,000 | ) | (4,889 | ) | (845,738 | ) | ||||||||||||||||||
Notional balance as of December 31, 2004 | $ | 142,017 | $ | 81,193 | $ | 32,273 | $ | 11,453 | $ | 170,705 | $ | 147,570 | $ | 104,150 | $ | 733 | $ | 690,094 | ||||||||||||||||||
Future maturities of notional amounts:(6) | ||||||||||||||||||||||||||||||||||||
Less than 1 year | $ | 5,105 | $ | 51,195 | $ | 29,250 | $ | 6,641 | $ | 18,225 | $ | 9,975 | $ | 71,150 | $ | 512 | $ | 192,053 | ||||||||||||||||||
1 year to 5 years | 18,215 | 25,870 | 2,923 | 3,906 | 49,950 | 19,425 | 32,250 | 11 | 152,550 | |||||||||||||||||||||||||||
5 years to 10 years | 80,335 | 2,538 | — | 92 | 92,680 | 100,120 | 750 | 210 | 276,725 | |||||||||||||||||||||||||||
Over 10 years | 38,362 | 1,590 | 100 | 814 | 9,850 | 18,050 | — | — | 68,766 | |||||||||||||||||||||||||||
Total | $ | 142,017 | $ | 81,193 | $ | 32,273 | $ | 11,453 | $ | 170,705 | $ | 147,570 | $ | 104,150 | $ | 733 | $ | 690,094 | ||||||||||||||||||
Weighted-average interest rate as of December 31, 2004: | ||||||||||||||||||||||||||||||||||||
Pay rate | 5.23 | % | 2.13 | % | 2.14 | % | — | 5.73 | % | — | — | — | ||||||||||||||||||||||||
Receive rate | 2.39 | 2.84 | 2.32 | — | — | 5.16 | % | — | — | |||||||||||||||||||||||||||
Other | — | — | — | — | — | — | 2.30 | % | — | |||||||||||||||||||||||||||
Weighted-average interest rate as of December 31, 2003: | ||||||||||||||||||||||||||||||||||||
Pay rate | 4.72 | % | 1.13 | % | 1.04 | % | — | 5.55 | % | — | — | — | ||||||||||||||||||||||||
Receive rate | 1.31 | 3.24 | 1.05 | — | — | 5.41 | % | — | — | |||||||||||||||||||||||||||
Other | — | — | — | — | — | — | 2.25 | % | — |
(1) | Excludes mortgage commitments accounted for as derivatives. Dollars represent notional amounts that indicate only the amount on which payments are being calculated and do not represent the amount at risk of loss. | |
(2) | Notional amounts include callable swaps of $13.8 billion as of December 31, 2004. | |
(3) | Notional amounts include putable swaps of $22.8 billion as of December 31, 2004. | |
(4) | Includes MBS options, forward starting debt, forward purchase and sale agreements, swap credit enhancements and exchange-traded futures. | |
(5) | Includes matured, called, exercised, assigned and terminated amounts. Also includes changes due to exchange rate movements. | |
(6) | Based on contractual maturities. |
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Month | 2004 | 2003 | 2002 | |||||||||
January | (1 | ) | (3 | ) | 2 | |||||||
February | (1 | ) | (5 | ) | (2 | ) | ||||||
March | 0 | (2 | ) | 5 | ||||||||
April | 3 | (2 | ) | 0 | ||||||||
May | 3 | (5 | ) | (1 | ) | |||||||
June | 2 | (1 | ) | (4 | ) | |||||||
July | 0 | 6 | (9 | ) | ||||||||
August | (2 | ) | 4 | (14 | ) | |||||||
September | (2 | ) | 1 | (10 | ) | |||||||
October | 0 | 1 | (6 | ) | ||||||||
November | (1 | ) | (1 | ) | 2 | |||||||
December | (1 | ) | (1 | ) | (5 | ) |
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As of December 31, 2004 | ||||||||||||||||||||||||
Effect on Estimated Fair Value | ||||||||||||||||||||||||
Carrying | Estimated | −50 Basis Points | +100 Basis Points | |||||||||||||||||||||
Value | Fair Value | $ | % | $ | % | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Trading financial instruments(1) | $ | 35,287 | $ | 35,287 | $ | 476 | 1.35 | % | $ | (1,417 | ) | (4.02 | )% | |||||||||||
Non-trading mortgage assets and consolidated debt(2) | 928,104 | 936,530 | 9,930 | 1.06 | (28,596 | ) | (3.05 | ) | ||||||||||||||||
Debt(2) | (943,017 | ) | (958,237 | ) | (9,215 | ) | 0.96 | 19,181 | (2.00 | ) | ||||||||||||||
Subtotal before derivatives | 20,374 | 13,580 | 1,191 | 8.77 | (10,832 | ) | (79.76 | ) | ||||||||||||||||
Derivative assets and liabilities, net | 5,444 | 5,444 | (3,150 | ) | (57.86 | ) | 8,525 | 156.59 | ||||||||||||||||
Subtotal after derivatives | 25,818 | 19,024 | (1,959 | ) | (10.30 | ) | (2,307 | ) | (12.13 | ) | ||||||||||||||
Guaranty assets and guaranty obligations, net(2) | (1,826 | ) | 6,450 | (1,499 | ) | (23.24 | ) | 1,498 | 23.22 | |||||||||||||||
Net market sensitive assets(2)(3) | 23,992 | 25,474 | (3,458 | ) | (13.57 | ) | (809 | ) | (3.18 | ) | ||||||||||||||
Other non-financial assets and liabilities, net(4) | 14,910 | 14,620 | 1,210 | 8.28 | 283 | 1.94 | ||||||||||||||||||
Net assets(5)(6) | $ | 38,902 | $ | 40,094 | $ | (2,248 | ) | (5.61 | )% | $ | (526 | ) | (1.31 | )% | ||||||||||
As of December 31, 2003 | ||||||||||||||||||||||||
Effect on Estimated Fair Value | ||||||||||||||||||||||||
Carrying | Estimated | −50 Basis Points | +100 Basis Points | |||||||||||||||||||||
Value | Fair Value | $ | % | $ | % | |||||||||||||||||||
(Restated) | (Restated) | |||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Trading financial instruments(1) | $ | 43,798 | $ | 43,798 | $ | 815 | 1.86 | % | $ | (1,965 | ) | (4.49 | )% | |||||||||||
Non-trading mortgage assets and consolidated debt(2) | 929,435 | 938,523 | 14,560 | 1.55 | (33,962 | ) | (3.62 | ) | ||||||||||||||||
Debt | (954,990 | ) | (977,607 | ) | (10,123 | ) | 1.04 | 20,542 | (2.10 | ) | ||||||||||||||
Subtotal before derivatives | 18,243 | 4,714 | 5,252 | 111.41 | (15,385 | ) | (326.37 | ) | ||||||||||||||||
Derivative assets and liabilities, net | 3,993 | 3,993 | (6,675 | ) | (167.17 | ) | 14,211 | 355.90 | ||||||||||||||||
Subtotal after derivatives | 22,236 | 8,707 | (1,423 | ) | (16.34 | ) | (1,174 | ) | (13.48 | ) | ||||||||||||||
Guaranty assets and guaranty obligations, net(2) | (1,578 | ) | 5,702 | (800 | ) | (14.03 | ) | 1,089 | 19.10 | |||||||||||||||
Net market sensitive assets(2)(3) | 20,658 | 14,409 | (2,223 | ) | (15.43 | ) | (85 | ) | (0.59 | ) | ||||||||||||||
Other non-financial assets and liabilities, net(4) | 11,610 | 13,984 | 788 | 5.64 | 37 | 0.26 | ||||||||||||||||||
Net assets(5)(6) | $ | 32,268 | $ | 28,393 | $ | (1,435 | ) | (5.05 | )% | $ | (48 | ) | (0.17 | )% | ||||||||||
(1) | Consists of securities classified in the consolidated balance sheets as trading and carried at fair estimated value. | |
(2) | Includes a reclassification of consolidated debt with a carrying value of $12.5 billion and estimated fair value of $12.2 billion as of December 31, 2004, respectively, and a carrying value of $10.0 billion and estimated fair value of $10.3 billion as of December 31, 2003, respectively. In addition, includes net guaranty asset amount of $500 million and $425 million as of December 31, 2004 and 2003, respectively, reclassified from securities to guaranty asset, guaranty obligations to reflect how the risk is managed by the business. | |
(3) | Includes net financial assets and financial liabilities reported in “Notes to Consolidated Financial Statements—Note 19, Fair Value of Financial Instruments” and additional market sensitive instruments that consist of master servicing assets, master servicing liabilities and credit enhancements. | |
(4) | The sensitivity changes related to other non-financial assets and liabilities represent the tax effect on net assets under these scenarios and do not include any interest rate sensitivity related to these items. | |
(5) | The carrying value for net assets equals total stockholders’ equity as reported in the consolidated balance sheets. | |
(6) | The net asset sensitivities, excluding the sensitivity of the “Guaranty assets and guaranty obligations, net,” net of tax is (3.2)% for a –50 bp shock and (3.7)% for a +100 bp shock as of December 31, 2004, and (3.2)% for a –50 bp shock and (2.7)% for a +100 bp shock as of December 31, 2003. |
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• | daily monitoring and reporting of our liquidity position; | |
• | daily forecasting of our ability to meet our liquidity needs over a90-day period without relying upon the issuance of unsecured debt; | |
• | daily monitoring of market and economic factors that may impact our liquidity; | |
• | a defined escalation process for bringing any liquidity issues or concerns that may arise to the attention of higher levels of our management; | |
• | routine testing of our ability to rely upon identified sources of liquidity; | |
• | periodic reporting to management and the Board of Directors regarding our liquidity position; | |
• | periodic review and testing of our liquidity management controls by our Internal Audit department; | |
• | maintaining unencumbered mortgage assets that are available as collateral for secured borrowings pursuant to repurchase agreements or for sale; and | |
• | maintaining an investment portfolio of liquid non-mortgage assets that are readily marketable or have short-term maturities so that we can quickly and easily convert these assets into cash. |
• | principal and interest payments received on our mortgage portfolio assets; | |
• | principal and interest payments received on our liquid investments; | |
• | borrowings under secured and unsecured intraday funding lines of credit we have established with several large financial institutions; | |
• | sales of mortgage loans, mortgage-related securities and liquid assets; | |
• | borrowings against mortgage-related securities and other investment securities we hold pursuant to repurchase agreements and loan agreements; | |
• | guaranty fees earned on Fannie Mae MBS; | |
• | mortgage insurance counterparty payments; and | |
• | net receipts on derivative instruments. |
• | the repayment of matured, redeemed and repurchased debt; | |
• | the purchase of mortgage loans, mortgage-related securities and other investments; | |
• | interest payments on outstanding debt; | |
• | net payments on derivative counterparty agreements; |
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• | the pledging of collateral under derivative instruments; | |
• | administrative expenses; | |
• | the payment of federal income taxes; | |
• | losses incurred in connection with our Fannie Mae MBS guaranty obligations; and | |
• | the payment of dividends on our common and preferred stock. |
For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
(Dollars in millions) | ||||||||||||
Issued during the year:(1) | ||||||||||||
Short-term:(2) | ||||||||||||
Amount:(3) | $ | 2,055,759 | $ | 2,234,000 | $ | 1,631,471 | ||||||
Weighted average interest rate: | 1.50 | % | 1.07 | % | 1.65 | % | ||||||
Long-term: | ||||||||||||
Amount:(3) | $ | 252,658 | $ | 348,112 | $ | 238,808 | ||||||
Weighted average interest rate: | 2.90 | % | 2.58 | % | 3.89 | % | ||||||
Total issued: | ||||||||||||
Amount:(3) | $ | 2,308,417 | $ | 2,582,112 | $ | 1,870,279 | ||||||
Weighted average interest rate: | 1.66 | % | 1.28 | % | 1.93 | % | ||||||
Redeemed during the year:(1)(4) | ||||||||||||
Short-term:(2) | ||||||||||||
Amount:(3) | $ | 2,081,726 | $ | 2,191,992 | $ | 1,615,947 | ||||||
Weighted average interest rate: | 1.34 | % | 1.12 | % | 1.82 | % | ||||||
Long-term: | ||||||||||||
Amount:(3) | $ | 238,686 | $ | 279,168 | $ | 176,450 | ||||||
Weighted average interest rate: | 3.26 | % | 3.66 | % | 5.03 | % | ||||||
Total redeemed: | ||||||||||||
Amount:(3) | $ | 2,320,412 | $ | 2,471,160 | $ | 1,792,397 | ||||||
Weighted average interest rate: | 1.54 | % | 1.41 | % | 2.13 | % |
(1) | Excludes the activity of debt from consolidations. | |
(2) | Includes the activity of Federal funds purchased and securities sold under agreements to repurchase. | |
(3) | Represents the face amount at issuance or redemption and does not include the effect of currency adjustments, debt basis adjustments or amortization of discounts, premiums and other deferred price adjustments. | |
(4) | Represents all payments on debt, including regularly scheduled principal payments, payments at maturity, payments as the result of a call and payments for any other repurchases. |
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2004 | ||||||||||||||||||||
December 31, | Average During the Year | |||||||||||||||||||
Weighted Average | Weighted Average | Maximum | ||||||||||||||||||
Outstanding | Interest Rate(1) | Outstanding(2) | Interest Rate(1) | Outstanding(3) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 2,400 | 1.90 | % | $ | 2,704 | 0.80 | % | $ | 10,455 | ||||||||||
Fixed short-term debt | ||||||||||||||||||||
U.S. discount notes | $ | 299,728 | 2.14 | % | $ | 306,539 | 1.42 | % | $ | 323,289 | ||||||||||
Foreign exchange discount notes | 6,591 | 0.84 | 3,064 | 1.10 | 7,089 | |||||||||||||||
Other fixed short-term debt | 3,724 | 1.59 | 3,236 | 1.43 | 3,779 | |||||||||||||||
Floating short-term debt | 6,250 | 2.19 | 7,548 | 1.41 | 9,135 | |||||||||||||||
Debt from consolidations | 3,987 | 2.20 | 2,989 | 1.54 | 3,987 | |||||||||||||||
Total short-term debt | $ | 320,280 | 2.11 | % | ||||||||||||||||
2003 | ||||||||||||||||||||
December 31, | Average During the Year | |||||||||||||||||||
Weighted Average | Weighted Average | Maximum | ||||||||||||||||||
Outstanding | Interest Rate(1) | Outstanding(2) | Interest Rate(1) | Outstanding(3) | ||||||||||||||||
(Restated) | ||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 3,673 | 1.03 | % | $ | 7,276 | 0.58 | % | $ | 21,773 | ||||||||||
Fixed short-term debt | ||||||||||||||||||||
U.S. discount notes | $ | 327,967 | 1.11 | % | $ | 320,987 | 1.20 | % | $ | 351,793 | ||||||||||
Foreign exchange discount notes | 1,214 | 1.37 | 1,432 | 1.48 | 3,291 | |||||||||||||||
Other fixed short-term debt | 1,863 | 1.53 | 726 | 1.13 | 2,250 | |||||||||||||||
Floating short-term debt | 10,235 | 1.03 | 5,343 | 1.16 | 10,235 | |||||||||||||||
Debt from consolidations | 2,383 | 1.14 | 1,360 | 1.23 | 2,383 | |||||||||||||||
Total short-term debt | $ | 343,662 | 1.11 | % | ||||||||||||||||
2002 | ||||||||||||||||||||
December 31, | Average During the Year | |||||||||||||||||||
Weighted Average | Weighted Average | Maximum | ||||||||||||||||||
Outstanding | Interest Rate(1) | Outstanding(2) | Interest Rate(1) | Outstanding(3) | ||||||||||||||||
(Restated) | ||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 9,170 | 1.27 | % | $ | 2,550 | 0.91 | % | $ | 12,384 | ||||||||||
Fixed short-term debt | ||||||||||||||||||||
U.S. discount notes | $ | 290,098 | 1.53 | % | $ | 252,858 | 1.96 | % | $ | 290,098 | ||||||||||
Foreign exchange discount notes | — | — | 2 | 0.27 | 25 | |||||||||||||||
Other fixed short-term debt | 1,450 | 1.79 | 3,835 | 2.49 | 5,374 | |||||||||||||||
Floating short-term debt | 1,990 | 1.27 | 11,772 | 1.69 | 18,924 | |||||||||||||||
Total short-term debt | $ | 293,538 | 1.53 | % | ||||||||||||||||
(1) | Includes discounts, premiums and other deferred price adjustments. | |
(2) | Average amount outstanding during the year has been calculated using month-end balances. | |
(3) | Maximum outstanding represents the highest month-end outstanding balance during the year. |
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Senior Long-Term | Senior Short-Term | Benchmark | ||||||||||
Unsecured Debt | Unsecured Debt | Subordinated Debt | Preferred Stock | |||||||||
Standard & Poor’s | AAA | A−1+ | AA− | (1) | AA− | (1) | ||||||
Moody’s Investors Service | Aaa | P−1 | Aa2 | (2) | Aa3 | (2) | ||||||
Fitch, Inc | AAA | F1+ | AA− | (3) | A+ | (4) |
(1) | On September 23, 2004, Standard & Poor’s placed our preferred stock and subordinated debt ratings on “credit watch negative.” | |
(2) | On September 28, 2004, Moody’s placed our preferred stock and subordinated debt ratings on a “negative outlook.” On December 15, 2005, Moody’s confirmed our preferred stock and subordinated debt ratings with a “stable outlook.” | |
(3) | On September 29, 2004, Fitch downgraded our subordinated debt rating from ‘AA’ to ‘AA−’. On December 23, 2004, Fitch placed our subordinated debt rating on “rating watch negative.” | |
(4) | On September 29, 2004, Fitch downgraded our preferred stock rating from ‘AA’ to ‘AA−’. On December 23, 2004, Fitch downgraded our preferred stock rating from ‘AA−’ to ‘A+’ and placed our preferred stock rating on “rating watch negative.” |
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• | complying with principles of sound liquidity management consistent with industry practice; | |
• | maintenance of a portfolio of highly liquid assets; | |
• | maintenance of a functional contingency plan providing for at least three months’ liquidity without relying upon the issuance of unsecured debt; and | |
• | periodic testing of our contingency plan in consultation with an OFHEO examiner. |
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Payments Due by Period as of December 31, 2004 | ||||||||||||||||||||
Less than | 1 to 3 | 3 to 5 | More than | |||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Long-term debt obligations(1) | $ | 624,324 | $ | 145,955 | $ | 207,392 | $ | 111,722 | $ | 159,255 | ||||||||||
Contractual interest on long-term debt obligations(2) | 137,514 | 23,638 | 36,040 | 23,466 | 54,370 | |||||||||||||||
Operating lease obligations(3) | 229 | 32 | 67 | 40 | 90 | |||||||||||||||
Purchase obligations: | ||||||||||||||||||||
Mortgage commitments(4) | 24,826 | 24,824 | 2 | — | — | |||||||||||||||
Other purchase obligations(5) | 33 | 16 | 16 | 1 | — | |||||||||||||||
Other long-term liabilities reflected in the consolidated balance sheet:(6) | ||||||||||||||||||||
Government penalty(7) | 400 | — | 400 | — | — | |||||||||||||||
Other(8) | 4,820 | 3,793 | 901 | 126 | — | |||||||||||||||
Total contractual obligations | $ | 792,146 | $ | 198,258 | $ | 244,818 | $ | 135,355 | $ | 213,715 | ||||||||||
(1) | Represents the carrying amount of our long-term debt assuming payments are made in full at maturity. Amounts exclude approximately $8.5 billion in long-term debt obligations attributable to consolidated VIEs. Amounts include net premium and deferred price adjustments of $11.2 billion. | |
(2) | Excludes contractual interest on long-term debt obligations attributable to consolidated VIEs. | |
(3) | Includes certain premises and equipment leases. | |
(4) | Includes on- and off-balance sheet commitments to purchase loans and mortgage-related securities. | |
(5) | Includes only unconditional purchase obligations that are subject to a cancellation penalty for certain telecom services, software and computer services, and agreements. Excludes arrangements that may be cancelled without penalty. | |
(6) | Excludes risk management derivative transactions that may require cash settlement in future periods and our obligations to stand ready to perform under our guaranties relating to Fannie Mae MBS and other financial guaranties, because the amount and timing of payments under these arrangements are generally contingent upon the occurrence of future events. | |
(7) | Represents a $400 million civil penalty to the U.S. government pursuant to May 23, 2006 settlements with the SEC and OFHEO. This penalty is included in the consolidated balance sheet under “Other Liabilities.” | |
(8) | Includes future cash payments due under our contractual obligations to fund LIHTC partnerships that are unconditional and legally binding, as well as cash received as collateral from derivative counterparties, both of which are included in the consolidated balance sheets under “Other liabilities.” |
• | We generated net cash of $41.6 billion in operating activities in 2004, primarily due to a net decrease in trading securities and net income. Our cash generated by operating activities was partially offset by purchases of HFS loans. |
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• | We used net cash of $16.8 billion in investing activities in 2004, primarily due to advances to lenders and purchases of AFS securities and HFI loans. The cash we used in investing activities was partially offset by proceeds we received from maturities of AFS securities and repayments of HFI loans. | |
• | We used net cash of $25.5 billion in financing activities in 2004, primarily for the redemption of short-term and long-term debt. The cash we used in financing activities was offset primarily by issuances of our short-term and long-term debt. |
• | We generated net cash of $58.2 billion in operating activities in 2003, primarily due to a net decrease in trading securities and net income. Our cash generated by operating activities was partially offset by purchases of HFS loans. | |
• | We used net cash of $152.7 billion in investing activities in 2003, primarily due to advances to lenders and purchases of AFS securities and HFI loans. Our cash used in investing activities was partially offset by proceeds we received from maturities and sales of AFS securities and repayments of HFI loans. | |
• | We raised net cash of $96.2 billion in financing activities in 2003, primarily by issuing short-term and long-term debt. Our cash provided by financing activities was partially offset primarily by redemption of short-term and long-term debt. |
• | We generated net cash of $43.6 billion in operating activities, primarily due to a net decrease in trading securities and net income. Our cash generated by operating activities was partially offset by purchases of HFS loans. | |
• | We used net cash of $113.6 billion in investing activities in 2002, primarily due to advances to lenders and purchases of AFS securities and HFI loans. Our cash used in investing activities was partially offset by proceeds we received from maturities of AFS securities and repayments of HFI loans. | |
• | We raised net cash of $70.6 billion in financing activities in 2002, primarily by issuing short-term and long-term debt. Our cash provided by financing activities was partially offset primarily by redemption of short-term and long-term debt. |
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• | 2.50% of on-balance sheet assets; | |
• | 0.45% of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and | |
• | up to 0.45% of other off-balance sheet obligations. |
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• | significantly reducing the size of our investment portfolio, through both normal mortgage liquidations and selected sales of mortgage assets, which reduced the amount of assets in the consolidated balance sheets and thereby reduced our overall minimum capital requirements; | |
• | issuing $5.0 billion in non-cumulative preferred stock in December 2004; | |
• | reducing our quarterly dividend rate by 50% on January 18, 2005, from $0.52 per share of common stock to $0.26 per share of common stock; and | |
• | canceling our plans to build major new corporate facilities in Southwest Washington, DC and undertaking other cost-cutting efforts. |
• | 1.25% of on-balance sheet assets; | |
• | 0.25% of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and | |
• | up to 0.25% of other off-balance sheet obligations. |
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As of December 31, | ||||||||||||
2004(1) | 2003(1) | 2002(1) | ||||||||||
(Restated) | (Restated) | |||||||||||
(Dollars in millions) | ||||||||||||
Core capital(2) | $ | 34,514 | $ | 26,953 | $ | 20,431 | ||||||
Required minumum capital(3) | 32,121 | 31,816 | 27,688 | |||||||||
Surplus (deficit) of core capital over/under required minimum capital | $ | 2,393 | $ | (4,863 | ) | $ | (7,257 | ) | ||||
Surplus (deficit) of core capital percentage over/under required minimum capital(4) | 7.4 | % | (15.3 | )% | (26.2 | )% | ||||||
Total capital(5) | $ | 35,196 | $ | 27,487 | $ | 20,831 | ||||||
Required risk-based capital(6) | 10,039 | 27,221 | 17,434 | |||||||||
Surplus of total capital over required risk-based capital | $ | 25,157 | $ | 266 | $ | 3,397 | ||||||
Surplus of total capital percentage over required risk-based capital(7) | 250.6 | % | 1.0 | % | 19.5 | % | ||||||
Core capital(2) | $ | 34,514 | $ | 26,953 | $ | 20,431 | ||||||
Required critical capital(8) | 16,435 | 16,261 | 14,126 | |||||||||
Surplus of core capital over required critical capital | $ | 18,078 | $ | 10,691 | $ | 6,305 | ||||||
Surplus of core capital percentage over required critical capital(9) | 110.0 | % | 65.7 | % | 44.6 | % |
(1) | Except for required risk-based capital amounts, all amounts represent estimates which will be resubmitted to OFHEO for their certification. Required risk-based capital amounts represent previously announced results by OFHEO. OFHEO may determine that results require restatement in the future based upon analysis provided by us. | |
(2) | The sum of (a) the stated value of our outstanding common stock (common stock less treasury stock); (b) the stated value of our outstanding non-cumulative perpetual preferred stock; (c) our paid-in capital; and (d) our retained earnings. Core capital excludes AOCI. | |
(3) | Generally, the sum of (a) 2.50% of on-balance sheet assets; (b) 0.45% of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and (c) up to 0.45% of other off-balance sheet obligations, which may be adjusted by the Director of OFHEO under certain circumstances (See 12 CFR 1750.4 for existing adjustments made by the Director of OFHEO). | |
(4) | Defined as the surplus (deficit) of core capital over required minimum capital expressed as a percentage of required minimum capital. | |
(5) | The sum of (a) core capital and (b) the total allowance for loan losses and reserve for guaranty losses, less (c) the specific loss allowance (that is, the allowance required on individually-impaired loans). The specific loss allowance totaled $63 million, $68 million and $40 million at December 31, 2004, 2003 and 2002, respectively. | |
(6) | Defined as the amount of total capital required to be held to absorb projected losses flowing from future adverse interest rate and credit risk conditions specified by statute (see 12 CFR 1750.13 for conditions), plus 30% mandated by statute to cover management and operations risk. | |
(7) | Defined as the surplus of total capital over required risk-based capital expressed as a percentage of risk-based capital. | |
(8) | Generally, the sum of (a) 1.25% of on-balance sheet assets; (b) 0.25% of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and (c) up to 0.25% of other off-balance sheet obligations, which may be adjusted by the Director of OFHEO under certain circumstances. | |
(9) | Defined as the surplus of core capital over critical capital expressed as a percentage of critical capital. |
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• | if a capital distribution would decrease our total capital below the risk-based capital requirement or our core capital below the minimum capital requirement, we may not make the distribution without the approval of OFHEO; | |
• | if we do not meet the risk-based capital requirement but do meet the minimum capital requirement, we may not make any capital distribution that would cause us to fail to meet the minimum capital requirement; and | |
• | if we meet neither the risk-based capital requirement nor the minimum capital requirement, but do meet the critical capital requirement established under the 1992 Act, we may make a capital distribution only if, immediately after making the distribution, we would still meet the critical capital requirement and the Director of OFHEO approves the distribution after determining that specified statutory conditions are satisfied. |
• | We must continue our commitment to maintain a 30% capital surplus over our statutory minimum capital requirement until such time as the Director of OFHEO determines that the requirement should be modified or allowed to expire, taking into account factors such as the resolution of accounting and internal control issues. |
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• | While the capital restoration plan is in effect, we must seek the approval of the Director of OFHEO before engaging in any transaction that could have the effect of reducing our capital surplus below an amount equal to 30% more than our statutory minimum capital requirement. | |
• | We must submit a written report to OFHEO detailing the rationale and process for any proposed capital distribution before making the distribution. | |
• | We are not permitted to increase our net mortgage portfolio assets above the amount shown in our minimum capital report to OFHEO as of December 31, 2005 ($727.75 billion), except in limited circumstances at the discretion of OFHEO. We will be subject to this limitation on portfolio growth until the Director of OFHEO has determined that expiration of the limitation is appropriate in light of information regarding: our capital; market liquidity issues; housing goals; risk management improvements; outside auditor’s opinion that our consolidated financial statements present fairly in all material respects our financial condition; receipt of an unqualified opinion from an outside audit firm that our internal controls are effective pursuant to section 404 of the Sarbanes-Oxley Act of 2002; or other relevant information. |
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• | our core capital is below 125% of our critical capital requirement; or | |
• | our core capital is below our minimum capital requirement, and the U.S. Secretary of the Treasury, acting on our request, exercises his or her discretionary authority pursuant to Section 304(c) of the Charter Act to purchase our debt obligations. |
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• | $0.39 per share for the first and second quarters of 2003; | |
• | $0.45 per share for the third and fourth quarters of 2003; | |
• | $0.52 per share for each quarter of 2004; | |
• | $0.26 per share for each quarter of 2005; and | |
• | $0.26 per share for the first, second and third quarters of 2006. |
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As of December 31, | ||||||||
2004 | 2003 | |||||||
(Restated) | ||||||||
(Dollars in millions) | ||||||||
Fannie Mae MBS and other guaranties outstanding(1) | $ | 1,917,384 | $ | 1,880,238 | ||||
Less: Fannie Mae MBS held in portfolio(2) | 344,404 | 405,922 | ||||||
Less: Consolidated Fannie Mae MBS(3) | 150,108 | 160,627 | ||||||
Fannie Mae MBS held by third parties and other guaranties | $ | 1,422,872 | $ | 1,313,689 | ||||
(1) | Represents $1.9 trillion in unpaid principal balance of Fannie Mae MBS outstanding as of both December 31, 2004 and 2003 and $14.8 billion and $13.2 billion in unpaid principal balance of other guaranties as of December 31, 2004 and 2003, respectively. | |
(2) | Recorded as “Investments in Securities” in the consolidated balance sheets. | |
(3) | Represents consolidated Fannie Mae MBS, which are recorded as “Mortgage loans” in the consolidated balance sheets. |
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2004 | ||||||||
Consolidated | Non-Consolidated | |||||||
(Dollars in millions) | ||||||||
As of December 31: | ||||||||
Obligation to fund LIHTC partnerships | $ | 562 | $ | 1,512 | ||||
For the year ended December 31: | ||||||||
Tax credits from investments in LIHTC partnerships | $ | 325 | $ | 386 | ||||
Losses from investments in LIHTC partnerships | 178 | 508 | ||||||
Tax benefits on credits and losses from investments in LIHTC partnerships | 387 | 563 | ||||||
Contributions to LIHTC partnerships | 600 | 791 | ||||||
Distributions from LIHTC partnerships | 1 | — |
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• | Condensed consolidated statements of income for the quarters ended March 31, 2004, June 30, 2004, September 30, 2004 and December 31, 2004. | |
• | Condensed consolidated balance sheets as of March 31, 2004, June 30, 2004, September 30, 2004 and December 31, 2004. | |
• | Condensed business segment results of operations for the quarters ended March 31, 2004, June 30, 2004, September 30, 2004 and December 31, 2004. |
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For the Quarter Ended | ||||||||||||||||||||||||
March 31, 2004 | June 30, 2004 | |||||||||||||||||||||||
As Previously | As | As Previously | As | September 30, | December 31, | |||||||||||||||||||
Reported(1) | Restated | Reported(1) | Restated | 2004 | 2004 | |||||||||||||||||||
(Dollars and shares in millions, except per share amounts) | ||||||||||||||||||||||||
Net interest income | $ | 3,196 | $ | 5,062 | $ | 3,113 | $ | 4,836 | $ | 4,000 | $ | 4,183 | ||||||||||||
Guaranty fee income | 737 | 891 | 657 | 727 | 1,067 | 919 | ||||||||||||||||||
Investment gains (losses), net | (8 | ) | 525 | (273 | ) | (1,518 | ) | 887 | (256 | ) | ||||||||||||||
Derivatives fair value gains (losses), net | (972 | ) | (6,446 | ) | (1,958 | ) | 2,269 | (7,136 | ) | (943 | ) | |||||||||||||
Debt extinguishment gains (losses), net | (27 | ) | (78 | ) | 24 | (7 | ) | (21 | ) | (46 | ) | |||||||||||||
Loss from partnership investments | (92 | ) | (145 | ) | (86 | ) | (177 | ) | (177 | ) | (203 | ) | ||||||||||||
Fee and other income | 158 | 56 | 208 | 413 | 103 | (168 | ) | |||||||||||||||||
Provision for credit losses | (32 | ) | (13 | ) | 12 | (55 | ) | (65 | ) | (219 | ) | |||||||||||||
Other expenses | (402 | ) | (456 | ) | (416 | ) | (415 | ) | (417 | ) | (978 | ) | ||||||||||||
Income (loss) before federal income taxes and extraordinary gains (losses) | 2,558 | (604 | ) | 1,281 | 6,073 | (1,759 | ) | 2,289 | ||||||||||||||||
Provision (benefit) for federal income taxes | 659 | (529 | ) | 169 | 1,753 | (910 | ) | 710 | ||||||||||||||||
Income (loss) before extraordinary gains (losses) | 1,899 | (75 | ) | 1,112 | 4,320 | (849 | ) | 1,579 | ||||||||||||||||
Extraordinary gains (losses), net of tax effect | — | 10 | — | (3 | ) | (18 | ) | 3 | ||||||||||||||||
Net income (loss) | $ | 1,899 | $ | (65 | ) | $ | 1,112 | $ | 4,317 | $ | (867 | ) | $ | 1,582 | ||||||||||
Preferred stock dividends and issuance costs at redemption | (43 | ) | (43 | ) | (40 | ) | (40 | ) | (41 | ) | (41 | ) | ||||||||||||
Net income (loss) available to common stockholders | $ | 1,856 | $ | (108 | ) | $ | 1,072 | $ | 4,277 | $ | (908 | ) | $ | 1,541 | ||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||||||
Earnings before extraordinary gains (losses) | $ | 1.91 | $ | (0.12 | ) | $ | 1.11 | $ | 4.41 | $ | (0.92 | ) | $ | 1.59 | ||||||||||
Extraordinary gains (losses), net of tax effect | — | 0.01 | — | — | (0.02 | ) | — | |||||||||||||||||
Basic earnings (loss) per share | $ | 1.91 | $ | (0.11 | ) | $ | 1.11 | $ | 4.41 | $ | (0.94 | ) | $ | 1.59 | ||||||||||
Diluted earnings (loss) per share | ||||||||||||||||||||||||
Earnings before extraordinary gains (losses) | $ | 1.90 | $ | (0.12 | ) | $ | 1.10 | $ | 4.40 | $ | (0.92 | ) | $ | 1.59 | ||||||||||
Extraordinary gains (losses), net of tax effect | — | 0.01 | — | — | (0.02 | ) | — | |||||||||||||||||
Diluted earnings (loss) per share | $ | 1.90 | $ | (0.11 | ) | $ | 1.10 | $ | 4.40 | $ | (0.94 | ) | $ | 1.59 | ||||||||||
Weighted-average common shares outstanding | ||||||||||||||||||||||||
Basic | 972 | 972 | 969 | 969 | 968 | 969 | ||||||||||||||||||
Diluted | 975 | 972 | 970 | 973 | 968 | 972 |
(1) | Certain amounts have been reclassified to conform to the current condensed consolidated statement of income presentation. |
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As of | ||||||||||||||||||||||||
March 31, 2004 | June 30, 2004 | |||||||||||||||||||||||
As Previously | As | As Previously | As | September 30, | December 31, | |||||||||||||||||||
Reported(1) | Restated | Reported(1) | Restated | 2004 | 2004 | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 3,214 | $ | 5,205 | $ | 340 | $ | 3,479 | $ | 3,857 | $ | 2,655 | ||||||||||||
Investments in securities: | ||||||||||||||||||||||||
Trading, at fair value | 6 | 42,552 | 11 | 38,323 | 37,223 | 35,287 | ||||||||||||||||||
Available-for-sale, at fair value | 225,853 | 517,106 | 240,475 | 515,067 | 535,826 | 532,095 | ||||||||||||||||||
Held-to-maturity, at fair value | 468,863 | — | 458,257 | — | — | — | ||||||||||||||||||
Total investments | 694,722 | 559,658 | 698,743 | 553,390 | 573,049 | 567,382 | ||||||||||||||||||
Mortgage loans: | ||||||||||||||||||||||||
Loans held for sale, at lower of cost or market | 6,655 | 13,318 | 2,637 | 11,363 | 11,280 | 11,721 | ||||||||||||||||||
Loans held for investment, at amortized cost | 236,054 | 380,115 | 239,982 | 385,253 | 389,766 | 390,000 | ||||||||||||||||||
Allowance for loan losses | (85 | ) | (288 | ) | (80 | ) | (296 | ) | (288 | ) | (349 | ) | ||||||||||||
Total loans | 242,624 | 393,145 | 242,539 | 396,320 | 400,758 | 401,372 | ||||||||||||||||||
Derivative assets at fair value | 7,464 | 7,223 | 11,300 | 9,736 | 8,729 | 6,589 | ||||||||||||||||||
Guaranty assets | 5,100 | 4,798 | 5,810 | 5,602 | 5,652 | 5,924 | ||||||||||||||||||
Deferred tax assets | 11,622 | 4,767 | 8,934 | 7,043 | 6,508 | 6,074 | ||||||||||||||||||
Other assets | 30,522 | 36,281 | 21,675 | 26,480 | 28,496 | 30,938 | ||||||||||||||||||
Total assets | $ | 995,268 | $ | 1,011,077 | $ | 989,341 | $ | 1,002,050 | $ | 1,027,049 | $ | 1,020,934 | ||||||||||||
Liabilities and Stockholders’ Equity: | ||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Short-term debt | $ | 468,999 | $ | 337,312 | $ | 422,899 | $ | 312,247 | $ | 336,321 | $ | 320,280 | ||||||||||||
Long-term debt | 474,091 | 606,340 | 515,296 | 632,076 | 630,585 | 632,831 | ||||||||||||||||||
Derivative liabilities at fair value | 4,146 | 5,357 | 318 | 558 | 1,885 | 1,145 | ||||||||||||||||||
Reserve for guaranty losses | 710 | 271 | 677 | 271 | 299 | 396 | ||||||||||||||||||
Guaranty obligations | 5,100 | 7,084 | 5,810 | 8,208 | 8,396 | 8,784 | ||||||||||||||||||
Other liabilities | 21,370 | 20,731 | 18,176 | 18,395 | 16,549 | 18,520 | ||||||||||||||||||
Total liabilities | 974,416 | 977,095 | 963,176 | 971,755 | 994,035 | 981,956 | ||||||||||||||||||
Minority interests in consolidated subsidiaries | 47 | 52 | 44 | 50 | 47 | 76 | ||||||||||||||||||
Stockholders’ Equity: | ||||||||||||||||||||||||
Retained earnings | 36,845 | 27,307 | 37,414 | 31,079 | 29,668 | 30,705 | ||||||||||||||||||
Accumulated other comprehensive income | (14,896 | ) | 7,686 | (9,994 | ) | 374 | 4,462 | 4,387 | ||||||||||||||||
Other stockholders’ equity | (1,144 | ) | (1,063 | ) | (1,299 | ) | (1,208 | ) | (1,163 | ) | 3,810 | |||||||||||||
Total stockholders’ equity | 20,805 | 33,930 | 26,121 | 30,245 | 32,967 | 38,902 | ||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 995,268 | $ | 1,011,077 | $ | 989,341 | $ | 1,002,050 | $ | 1,027,049 | $ | 1,020,934 | ||||||||||||
(1) | Certain amounts have been reclassified to conform to the current condensed consolidated balance sheet presentation. |
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For the Quarter Ended March 31, 2004 | ||||||||||||||||
Single-Family | Capital | |||||||||||||||
Credit Guaranty | HCD | Markets | Total | |||||||||||||
(Restated) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 93 | $ | (37 | ) | $ | 5,006 | $ | 5,062 | |||||||
Guaranty fee income (expense)(2) | 1,096 | 98 | (303 | ) | 891 | |||||||||||
Investment gains, net | 32 | — | 493 | 525 | ||||||||||||
Derivatives fair value losses, net | — | — | (6,446 | ) | (6,446 | ) | ||||||||||
Debt extinguishment losses, net | — | — | (78 | ) | (78 | ) | ||||||||||
Losses from partnership investments | — | (145 | ) | — | (145 | ) | ||||||||||
Fee and other income (expense) | 49 | 48 | (41 | ) | 56 | |||||||||||
Provision for credit losses | (3 | ) | (10 | ) | — | (13 | ) | |||||||||
Other expenses | (236 | ) | (84 | ) | (136 | ) | (456 | ) | ||||||||
Income (loss) before federal income taxes and extraordinary gains (losses) | 1,031 | (130 | ) | (1,505 | ) | (604 | ) | |||||||||
Provision (benefit) for federal income taxes | 359 | (226 | ) | (662 | ) | (529 | ) | |||||||||
Income (loss) before extraordinary gains (losses) | 672 | 96 | (843 | ) | (75 | ) | ||||||||||
Extraordinary gain, net of tax effect | — | — | 10 | 10 | ||||||||||||
Net income (loss) | $ | 672 | $ | 96 | $ | (833 | ) | $ | (65 | ) | ||||||
(1) | Includes cost of capital charge. | |
(2) | Includes intercompany guaranty fee income (expense) of $254 million allocated to Single-Family Credit Guaranty and HCD from Capital Markets for absorbing the credit risk on mortgage loans and Fannie Mae MBS held in our portfolio. |
For the Quarter Ended June 30, 2004 | ||||||||||||||||
Single-Family | Capital | |||||||||||||||
Credit Guaranty | HCD | Markets | Total | |||||||||||||
(Restated) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 118 | $ | (34 | ) | $ | 4,752 | $ | 4,836 | |||||||
Guaranty fee income (expense)(2) | 954 | 77 | (304 | ) | 727 | |||||||||||
Investment gains (losses), net | 29 | — | (1,547 | ) | (1,518 | ) | ||||||||||
Derivatives fair value gains, net | — | — | 2,269 | 2,269 | ||||||||||||
Debt extinguishment losses, net | — | — | (7 | ) | (7 | ) | ||||||||||
Losses from partnership investments | — | (177 | ) | — | (177 | ) | ||||||||||
Fee and other income | 77 | 72 | 264 | 413 | ||||||||||||
Provision for credit losses | (34 | ) | (21 | ) | — | (55 | ) | |||||||||
Other expenses | (212 | ) | (86 | ) | (117 | ) | (415 | ) | ||||||||
Income (loss) before federal income taxes and extraordinary gains (losses) | 932 | (169 | ) | 5,310 | 6,073 | |||||||||||
Provision (benefit) for federal income taxes | 326 | (243 | ) | 1,670 | 1,753 | |||||||||||
Income before extraordinary gains (losses) | 606 | 74 | 3,640 | 4,320 | ||||||||||||
Extraordinary losses, net of tax effect | — | — | (3 | ) | (3 | ) | ||||||||||
Net income | $ | 606 | $ | 74 | $ | 3,637 | $ | 4,317 | ||||||||
(1) | Includes cost of capital charge. | |
(2) | Includes intercompany guaranty fee income (expense) of $257 million allocated to Single-Family Credit Guaranty and HCD from Capital Markets for absorbing the credit risk on mortgage loans and Fannie Mae MBS held in our portfolio. |
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For the Quarter Ended September 30, 2004 | ||||||||||||||||
Single-Family | Capital | |||||||||||||||
Credit Guaranty | HCD | Markets | Total | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 125 | $ | (36 | ) | $ | 3,911 | $ | 4,000 | |||||||
Guaranty fee income (expense)(2) | 1,278 | 100 | (311 | ) | 1,067 | |||||||||||
Investment gains, net | 8 | — | 879 | 887 | ||||||||||||
Derivatives fair value losses, net | — | — | (7,136 | ) | (7,136 | ) | ||||||||||
Debt extinguishment losses, net | — | — | (21 | ) | (21 | ) | ||||||||||
Losses from partnership investments | — | (177 | ) | — | (177 | ) | ||||||||||
Fee and other income (expense) | 41 | 87 | (25 | ) | 103 | |||||||||||
Provision for credit losses | (74 | ) | 9 | — | (65 | ) | ||||||||||
Other expenses | (215 | ) | (93 | ) | (109 | ) | (417 | ) | ||||||||
Income (loss) before federal income taxes and extraordinary gains (losses) | 1,163 | (110 | ) | (2,812 | ) | (1,759 | ) | |||||||||
Provision (benefit) for federal income taxes | 406 | (220 | ) | (1,096 | ) | (910 | ) | |||||||||
Income (loss) before extraordinary gains (losses) | 757 | 110 | (1,716 | ) | (849 | ) | ||||||||||
Extraordinary losses, net of tax effect | — | — | (18 | ) | (18 | ) | ||||||||||
Net income (loss) | $ | 757 | $ | 110 | $ | (1,734 | ) | $ | (867 | ) | ||||||
(1) | Includes cost of capital charge. | |
(2) | Includes intercompany guaranty fee income (expense) of $260 million allocated to Single-Family Credit Guaranty and HCD from Capital Markets for absorbing the credit risk on mortgage loans and Fannie Mae MBS held in our portfolio. |
For the Quarter Ended December 31, 2004 | ||||||||||||||||
Single-Family | Capital | |||||||||||||||
Credit Guaranty | HCD | Markets | Total | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 142 | $ | (37 | ) | $ | 4,078 | $ | 4,183 | |||||||
Guaranty fee income (expense)(2) | 1,127 | 104 | (312 | ) | 919 | |||||||||||
Investment gains (losses), net | 15 | — | (271 | ) | (256 | ) | ||||||||||
Derivatives fair value losses, net | — | — | (943 | ) | (943 | ) | ||||||||||
Debt extinguishment losses, net | — | — | (46 | ) | (46 | ) | ||||||||||
Losses from partnership investments | — | (203 | ) | — | (203 | ) | ||||||||||
Fee and other income (expense) | 53 | 105 | (326 | ) | (168 | ) | ||||||||||
Provision for credit losses | (201 | ) | (18 | ) | — | (219 | ) | |||||||||
Other expenses | (360 | ) | (132 | ) | (486 | ) | (978 | ) | ||||||||
Income (loss) before federal income taxes and extraordinary gains (losses) | 776 | (181 | ) | 1,694 | 2,289 | |||||||||||
Provision (benefit) for federal income taxes | 297 | (238 | ) | 651 | 710 | |||||||||||
Income before extraordinary gains | 479 | 57 | 1,043 | 1,579 | ||||||||||||
Extraordinary gain, net of tax effect | — | — | 3 | 3 | ||||||||||||
Net income | $ | 479 | $ | 57 | $ | 1,046 | $ | 1,582 | ||||||||
(1) | Includes cost of capital charge. | |
(2) | Includes intercompany guaranty fee income (expense) of $260 million allocated to Single-Family Credit Guaranty and HCD from Capital Markets for absorbing the credit risk on mortgage loans and Fannie Mae MBS held in our portfolio. |
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Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Item 8. | Financial Statements and Supplementary Data |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Item 9A. | Controls and Procedures |
• | revision and adoption of a new charter by the Disclosure Committee; | |
• | an annual review of the Disclosure Committee charter; | |
• | clarification of authority and role of the Disclosure Committee; | |
• | formal training for Disclosure Committee members; | |
• | maintenance of agendas; and | |
• | implementation of a formalized voting process. |
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• | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; | |
• | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and members of our Board of Directors; and | |
• | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements. |
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• | Tone at the Top |
• | Accounting Policy |
• | Board of Directors and Executive Roles |
• | Enterprise-Wide Risk Oversight |
• | Internal Audit |
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• | Human Resources |
• | Fraud Risk Management Program |
• | Whistleblower Program |
• | Accounting/Finance Staffing Levels |
• | Information Technology Policy |
• | Policies and Procedures |
• | our accounting for debt and derivatives; | |
• | our accounting for commitments; | |
• | our accounting for investments in securities; | |
• | our accounting for MBS trust consolidations and sale accounting; | |
• | our accounting for financial guaranties and master servicing; | |
• | our amortization of cost basis adjustments; and | |
• | other adjustments, including accounting for income taxes. |
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• | Financial Statement Preparation and Reporting |
• | Disclosure Controls |
• | General Ledger Controls |
• | Journal Entry Controls |
• | Reconciliation Controls |
• | Access Control |
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• | Change Management |
• | End User Computing |
• | we did not engage Deloitte & Touche until after December 31, 2004; |
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• | we made significant changes in the personnel responsible for internal control over financial reporting prior to the commencement of their work; and | |
• | we made extensive changes to our internal control over financial reporting that had been in place as of December 31, 2004 prior to the commencement of their field work. |
• | Tone at the Top; | |
• | Board of Directors and Executive Roles; | |
• | Whistleblower Program; and | |
• | Accounting/Finance Staff Levels. |
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• | Tone at the Top |
• | Accounting Policy |
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• | Board of Directors and Executive Roles |
• | amending our bylaws to separate the functions of the Chief Executive Officer and Chairman of the Board; | |
• | appointing Stephen B. Ashley as non-executive Chairman of the Board; | |
• | creating a Risk Policy and Capital Committee of the Board in February 2005, which replaced the role of the former Assets & Liabilities Policy Committee in assisting the Board in overseeing capital management and risk management; | |
• | creating a Technology and Operations Committee of the Board with responsibility for assisting the Board in overseeing these functions; | |
• | re-designating a new Compliance Committee of the Board, composed entirely of independent directors, in October 2004, that now has responsibility for monitoring compliance with our May 2006 consent order with OFHEO. In November 2005, the Board of Directors commissioned the Compliance Committee as a permanent committee of the Board with responsibility for providing legal and regulatory oversight; | |
• | revising the charters of six standing committees of our Board of Directors (Audit Committee, Nominating and Corporate Governance Committee, Compensation Committee, Compliance Committee, Risk Policy and Capital Committee, and Housing and Community Finance Committee); | |
• | changing the composition of the Board by eliminating two of the three management Board seats; | |
• | adding six new Board members who enhance the substantive business operations, accounting and finance knowledge of the Board; and | |
• | naming a new Chairman of the Audit Committee and appointing three other new members to the Audit Committee. |
• | Enterprise-Wide Risk Oversight |
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• | Internal Audit |
• | Human Resources |
• | Fraud Risk Management Program |
• | Whistleblower Program |
• | Accounting/Finance Staffing Levels |
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• | Information Technology Policy |
• | Policies and Procedures |
• | Financial Statement Preparation and Reporting |
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• | Disclosure Controls |
• | General Ledger Controls |
• | Journal Entry Controls |
• | Reconciliation Controls |
• | Access Control |
• | Change Management |
• | End User Computing |
• | identification of all EUCs that could be material to our financial reporting; | |
• | protecting EUCs through maintenance on a controlled platform within our IT infrastructure where EUC access can be controlled using a process similar to the corporate application access process; |
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• | EUC version control; and | |
• | data change control. |
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• | Control Environment—The Company did not maintain an effective control environment related to internal control over financial reporting. Specifically, the control environment lacked the following controls which represent material weaknesses: a consistent and proper tone at the top, a comprehensive set of financial accounting policies, clearly defined roles and responsibilities of executive management and the board of directors, a comprehensive and independent risk oversight function, an effective and independent Internal Audit function, a human resources function with clear enterprise-wide coordination, a comprehensive and centrally coordinated enterprise-wide fraud risk management program, a trusted whistleblower program, appropriate accounting/finance staffing levels, clearly communicated information technology policies and procedures, and adequate transactional policies and procedures. | |
• | Application of Accounting Principles Generally Accepted in the United States of America—The Company did not maintain effective internal control relating to its process and information technology applications |
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for determining, monitoring, disseminating, implementing and updating accounting policies that complied with accounting principles generally accepted in the United States of America. |
• | Financial Reporting Process—The Company did not maintain an effective, timely and accurate financial reporting process, including a lack of timely and complete financial statement reviews, effective disclosure controls and procedures, general ledger and journal entry controls, and appropriate reconciliation processes. | |
• | Information Technology Applications and Infrastructure—The Company did not maintain effective internal control related to information technology applications and infrastructure, including access controls, change management controls, and controls over end user computing including spreadsheets. | |
• | Independent Model Review Process—The design of internal control did not provide for independent review that accounting related models and assumptions were appropriate and that outputs were calculated accurately according to model specifications. | |
• | Treasury and Trading Operations—The design of internal control was inadequate with respect to the process of authorizing, approving, validating, and settling trades, including inadequate segregation of duties among trading, settlement, and valuation activities within both the treasury and trading operations. | |
• | Pricing and Independent Price Verification Processes—The design of internal control was inadequate with respect to the process used to price assets and liabilities, and did not maintain appropriate segregation of duties between the pricing function and the function responsible for independently verifying such prices. | |
• | Wire Transfer Controls—The design of internal control was insufficient with respect to the initiation, authorization, segregation of duties and anti-fraud measures related to wire transfer transactions and with respect to the reconciliation of cash balances and wire transfer activity. |
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Item 9B. | Other Information |
Item 10. | Directors and Executive Officers of the Registrant |
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• | A director will not be considered independent if, within the preceding five years: |
• | the director was our employee; or | |
• | an immediate family member of the director was employed by us as an executive officer. |
• | A director will not be considered independent if: |
• | the director is a current partner or employee of our outside auditor, or within the preceding five years, was (but is no longer) a partner or employee of our outside auditor and personally worked on our audit within that time; or | |
• | an immediate family member of the director is a current partner of our outside auditor, or is a current employee of our outside auditor participating in the firm’s audit, assurance or tax compliance (but not |
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tax planning) practice, or within the preceding five years, was (but is no longer) a partner or employee of our outside auditor and personally worked on our audit within that time. |
• | A director will not be considered independent if, within the preceding five years: |
• | the director was employed by a company at a time when one of our current executive officers sat on that company’s compensation committee; or | |
• | an immediate family member of the director was employed as an officer by a company at a time when one of our current executive officers sat on that company’s compensation committee. |
• | A director will not be considered independent if, within the preceding five years: |
• | the director received any compensation from us, directly or indirectly, other than fees for service as a director; or | |
• | an immediate family member of the director received any compensation from us, directly or indirectly, other than compensation received for service as our employee (other than an executive officer). |
• | A director will not be considered independent if: |
• | the director is a current executive officer, employee, controlling stockholder or partner of a corporation or other entity that does or did business with us and to which we made, or from which we received, payments within the preceding five years that, in any single fiscal year, were in excess of $1 million or 2% of the entity’s consolidated gross annual revenues, whichever is greater; or | |
• | an immediate family member of the director is a current executive officer of a corporation or other entity that does or did business with us and to which we made, or from which we received, payments within the preceding five years that, in any single fiscal year, were in excess of $1 million or 2% of the entity’s consolidated gross annual revenues, whichever is greater. |
• | A director will not be considered independent if the director or the director’s spouse is an executive officer, employee, director or trustee of a nonprofit organization to which we or the Fannie Mae Foundation makes contributions in any year in excess of 5% of the organization’s consolidated gross annual revenues, or $100,000, whichever is less (amounts that the Fannie Mae Foundation contributes under our matching gifts program are not included in the contributions calculated for purposes of this standard). The Nominating and Corporate Governance Committee also will administer standards concerning any charitable contribution to organizations otherwise associated with a director or any spouse of a director. We are guided by our interests and that of our stockholders in determining whether and the extent to which we make charitable contributions. |
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Item 11. | Executive Compensation |
Long Term Compensation | ||||||||||||||||||||||||||||||||
Awards | Payouts | |||||||||||||||||||||||||||||||
Annual Compensation(2) | Restricted | Securities | | |||||||||||||||||||||||||||||
Other Annual | Stock | Underlying | LTIP | All Other | ||||||||||||||||||||||||||||
Name and | Salary | Bonus | Compensation | Awards | Options / | Payouts | Compensation | |||||||||||||||||||||||||
Principal Position(1) | Year | ($) | ($) | ($)(3) | ($)(4) | SARs(#) | ($)(5) | ($)(6) | ||||||||||||||||||||||||
Daniel Mudd | 2004 | 743,895 | — | 20,615 | 5,524,381 | — | — | 43,200 | ||||||||||||||||||||||||
President and | 2003 | 714,063 | 1,288,189 | 125,822 | — | 105,749 | 4,674,015 | 10,167 | ||||||||||||||||||||||||
Chief Executive Officer | 2002 | 689,124 | 911,250 | 54,885 | — | 82,918 | 2,339,702 | 9,569 | ||||||||||||||||||||||||
Robert Levin | 2004 | 590,923 | — | 17,288 | 3,125,480 | — | — | 39,015 | ||||||||||||||||||||||||
Executive Vice President— | 2003 | 567,706 | 801,237 | 851 | 227,789 | 100,613 | 2,706,381 | 10,024 | ||||||||||||||||||||||||
Chief Business Officer | 2002 | 480,092 | 575,000 | 950 | — | 72,445 | 1,947,368 | 9,811 | ||||||||||||||||||||||||
Julie St. John | 2004 | 495,169 | — | 22,853 | 1,994,111 | — | — | 47,221 | ||||||||||||||||||||||||
Executive Vice President | 2003 | 471,415 | 661,891 | 846 | — | 73,880 | 1,884,314 | 9,164 | ||||||||||||||||||||||||
2002 | 428,195 | 570,000 | 1,064 | — | 63,836 | 1,008,334 | 8,981 | |||||||||||||||||||||||||
Michael Williams | 2004 | 495,169 | — | 12,823 | 2,194,110 | — | — | 30,604 | ||||||||||||||||||||||||
Executive Vice President— | 2003 | 471,415 | 663,129 | 717 | — | 73,880 | 1,274,349 | 8,302 | ||||||||||||||||||||||||
Chief Operating Officer | 2002 | 428,195 | 520,000 | 865 | — | 63,836 | 443,137 | 8,134 | ||||||||||||||||||||||||
Thomas Donilon(7) | 2004 | 632,923 | — | 21,943 | 2,576,967 | — | — | 45,586 | ||||||||||||||||||||||||
Former Executive Vice | 2003 | 494,492 | 727,020 | 903 | 834,628 | 89,268 | 1,915,304 | 9,189 | ||||||||||||||||||||||||
President—Law and Policy | 2002 | 428,195 | 600,000 | 990 | — | 75,595 | 913,274 | 8,539 | ||||||||||||||||||||||||
Franklin Raines(8) | 2004 | 992,250 | — | 406,989 | — | — | — | 152,398 | ||||||||||||||||||||||||
Former Chairman of the Board | 2003 | 992,250 | 4,180,365 | 272,241 | — | 135,020 | 11,621,206 | 25,501 | ||||||||||||||||||||||||
and Chief Executive Officer | 2002 | 992,250 | 3,300,000 | 206,378 | — | 311,731 | 7,233,679 | 24,248 |
(1) | Positions indicated are the current position or, for departed executives, the most recently held position. | |
(2) | Our executive compensation program is designed to tie a large portion of each officer’s total compensation to performance. An executive officer’s bonus generally is designed to reflect corporate and individual performance for the previous year. See also footnote (5) for information about long-term compensation. “Salary” includes annual salary deferred to later years. “Bonus” includes amounts earned during the year under the Annual Incentive Plan. | |
(3) | “Other Annual Compensation” in 2004 includes $186,452 for the personal use of company transportation for Mr. Raines, which does not include an increase of approximately $5,600 in our federal income tax liability attributable to Mr. Raines’ personal use of company airplane transportation. “Other Annual Compensation” for 2004 also includes agross-up for taxable income on insurance coverage provided by the company for the covered executives in the following amounts: Mr. Mudd—$20,615; Mr. Levin—$17,288; Ms. St. John—$22,853; Mr. Williams—$12,823; Mr. Donilon—$21,943; and Mr. Raines—$81,375. “Other Annual Compensation” in 2003 includes $196,852 for the personal use of company transportation for Mr. Raines, and, for Mr. Mudd, $80,400 for club membership fees agreed to by us in connection with recruiting him from his prior employment. It also includes $32,093 for residential security services |
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for each of Mr. Raines and Mr. Mudd and agross-up for taxable income on insurance coverage provided by the company for the covered executives in the following amounts: Mr. Mudd—$1,066; Mr. Levin—$851; Ms. St. John—$846; Mr. Williams—$717; Mr. Donilon—$903; and Mr. Raines—$2,503. “Other Annual Compensation” in 2002 includes $123,539 for personal use of company transportation for Mr. Raines, $39,525 for residential security services for Mr. Raines and Mr. Mudd and agross-up for taxable income on insurance coverage provided by the company for the covered executives in the following amounts: Mr. Mudd—$1,358; Mr. Levin—$950; Ms. St. John—$1,064; Mr. Williams—$865; Mr. Donilon—$990; and Mr. Raines—$3,160. | ||
(4) | Restricted stock awards and, in the case of Mr. Mudd, restricted stock unit awards made in March 2005 are reported as compensation for 2004. The shares and units vest over three years in equal annual installments. Dividends are paid on restricted common stock and dividend equivalents are paid on restricted stock units at the same rate as dividends on unrestricted common stock. As of December 31, 2004, the covered executives held a number of shares of unvested restricted common stock with an aggregate value based on closing price as follows: Mr. Mudd—5,000 shares, $356,050; Mr. Levin—2,920 shares, $207,933; Ms. St. John—1,000 shares, $71,210; Mr. Williams—1,000 shares, $71,210; Mr. Donilon—14,677 shares, $1,045,149; Mr. Raines held no shares. As of December 31, 2004, Mr. Mudd held no restricted stock units. The four covered executives who were employed by us as of December 31, 2005 held shares of unvested restricted common stock and restricted stock units with an aggregate value based on the closing price on December 31, 2005 as follows: Mr. Mudd—127,476 shares, $6,222,104; Mr. Levin—56,339 shares, $2,749,907; Ms. St. John—34,548 shares, $1,686,288; and Mr. Williams—38,013 shares, $1,855,415. | |
(5) | “LTIP Payouts” relate to annual awards entitling executives to receive shares of common stock based upon and subject to our meeting corporate performance objectives over three-year periods. Generally, the Compensation Committee of our Board of Directors determines in January our achievement against the goals for the performance share cycle that just ended. That achievement determines the payout of the performance shares and the shares are paid out to current executives in two annual installments. Because we did not have reliable financial data for years within the award cycles, the Compensation Committee and the Board decided to postpone the determination of the amount of the awards under the performance share program for the three-year performance share cycles that ended in 2004 and 2005 and to postpone payment of the second installment of shares for the three-year performance share cycle that ended in 2003, the first installment of which was paid in January 2004. In the future, the Compensation Committee and the Board of Directors will review the performance share program and determine the appropriate approach for settling our obligations with respect to the existing unpaid performance share cycles. | |
(6) | “All Other Compensation” for each covered executive in 2004 includes a $6,150 employer matching contribution under the Retirement Savings Plan for Employees and premiums of $1,150 paid on behalf of each covered executive in 2004 for excess liability insurance coverage. “All Other Compensation” for 2004 also includes premiums paid on behalf of each covered executive for universal life insurance coverage in the following amounts: Mr. Mudd—$35,900; Mr. Levin—$31,715; Ms. St. John—$39,921; Mr. Williams—$23,304; Mr. Donilon—$38,286; and Mr. Raines—$145,098. | |
(7) | Mr. Donilon left Fannie Mae in April 2005. | |
(8) | Mr. Raines ceased serving as an executive officer of Fannie Mae in December 2004, although under his employment agreement his retirement was not effective until June 2005. |
Number of Securities | ||||||||||||||||
Shares | Underlying | Value of UnexercisedIn-the- | ||||||||||||||
Acquired | Unexercised Options | Money Options | ||||||||||||||
on Exercise | Value Realized | at December 31, 2004 | at December 31, 2004 | |||||||||||||
Name | (#) | ($)(1) | Exercisable/Unexercisable (#) | Exercisable/Unexercisable ($)(2) | ||||||||||||
Daniel Mudd | — | $ | — | 407,419/189,737 | $ | 4,304,340/$110,696 | ||||||||||
Robert Levin | 92,800 | 5,181,679 | 372,924/166,131 | 4,840,754/96,715 | ||||||||||||
Julie St. John | — | — | 171,883/132,941 | 1,005,850/85,221 | ||||||||||||
Michael Williams | 21,600 | 1,211,208 | 192,944/132,941 | 2,017,075/85,221 | ||||||||||||
Thomas Donilon | — | — | 145,556/157,149 | 256,160/100,921 | ||||||||||||
Franklin Raines | — | — | 1,628,071/438,153 | 6,266,561/416,162 |
(1) | “Value Realized” is the difference between the exercise price and the market price on the exercise date, multiplied by the number of options exercised. “Value Realized” numbers do not necessarily reflect what the executive might receive when he or she sells the shares acquired by the option exercise, since the market price of the shares at the time of sale may be higher or lower than the price on the exercise date of the option. |
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(2) | “Value of UnexercisedIn-the-Money Options” is the aggregate, calculated on agrant-by-grant basis, of the product of the number of unexercised options at the end of 2004 multiplied by the difference between the exercise price for the grant and the December 31, 2004 closing price per share of Fannie Mae common stock of $71.21, excluding grants for which the exercise price equaled or exceeded $71.21. As of November 30, 2006, the closing price per share of Fannie Mae common stock was $57.03. |
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Final Average | Estimated Annual Pension for Representative Years of Service | |||||||||||||||||||||||
Annual Earnings | 10 | 15 | 20 | 25 | 30 | 35 | ||||||||||||||||||
$ 50,000 | $ | 7,683 | $ | 11,524 | $ | 16,136 | $ | 20,941 | $ | 25,746 | $ | 30,551 | ||||||||||||
100,000 | 17,683 | 26,524 | 36,136 | 45,941 | 55,746 | 65,551 | ||||||||||||||||||
150,000 | 27,683 | 41,524 | 56,136 | 70,941 | 85,746 | 100,551 | ||||||||||||||||||
200,000 | 37,683 | 56,524 | 76,136 | 95,941 | 115,746 | 135,551 | ||||||||||||||||||
250,000 | 47,683 | 71,524 | 96,136 | 120,941 | 145,746 | 170,551 | ||||||||||||||||||
300,000 | 57,683 | 86,524 | 116,136 | 145,941 | 175,746 | 205,551 | ||||||||||||||||||
350,000 | 67,683 | 101,524 | 136,136 | 170,941 | 205,746 | 240,551 | ||||||||||||||||||
400,000 | 77,683 | 116,524 | 156,136 | 195,941 | 235,746 | 275,551 | ||||||||||||||||||
450,000 | 87,683 | 131,524 | 176,136 | 220,941 | 265,746 | 310,551 | ||||||||||||||||||
500,000 | 97,683 | 146,524 | 196,136 | 245,941 | 295,746 | 345,551 | ||||||||||||||||||
550,000 | 107,683 | 161,524 | 216,136 | 270,941 | 325,746 | 380,551 | ||||||||||||||||||
600,000 | 117,683 | 176,524 | 236,136 | 295,941 | 355,746 | 415,551 | ||||||||||||||||||
650,000 | 127,683 | 191,524 | 256,136 | 320,941 | 385,746 | 450,551 | ||||||||||||||||||
700,000 | 137,683 | 206,524 | 276,136 | 345,941 | 415,746 | 485,551 | ||||||||||||||||||
1,970,600 | 391,803 | 587,704 | 784,376 | 981,241 | 1,178,106 | 1,374,971 |
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• | Employment Term. Through December 31, 2009. | |
• | Base Salary. Mr. Mudd’s annual base salary will be no lower than $950,000. This base salary is subject to periodic review and possible increases, but not decreases, by the Board of Directors. Compensation arrangements for Mr. Mudd are determined annually by the Board of Directors (excluding Mr. Mudd and any other non-independent members of the Board) upon the recommendation of the Compensation Committee of the Board of Directors. Mr. Mudd’s annual salary from June 1, 2005 was $950,000 and his 2006 salary remains the same. | |
• | Annual Bonus. The amount of any cash bonus Mr. Mudd receives may be less than, equal to, or greater than his target amount, depending on corporate and individual performance, and subject to prior approval from OFHEO while the company is subject to its capital restoration plan. Mr. Mudd’s annual cash bonus target award from June 1, 2005 was 275% of his base salary, and his bonus target award for 2006 remains the same. | |
• | Executive Pension Plan. Mr. Mudd is entitled to participate in our Executive Pension Plan and our Supplemental Pension Plans described above. The Executive Pension Plan supplements the benefits payable to key officers under the Fannie Mae Retirement Plan. Mr. Mudd’s employment agreement provides that his pension goal will be at least 50% of the average total compensation for the 36 consecutive months of his last 120 months of employment when total compensation was the highest. Mr. Mudd’s pension goal is currently set at 50%. Mr. Mudd’s total compensation for a given year includes other taxable compensation up to 100%, not 50%, of his annual base salary for that year. If he retires before reaching age 60, his pension goal will be reduced by 3 percentage points, rather than the 2 percentage points reduction generally applicable to participants in the plan, for each year in which he receives benefits prior to age 60. In addition, if his benefit payment is in the form of a joint and 100% survivor annuity, it will be actuarially reduced to reflect the joint life expectancy of Mr. Mudd and his spouse. | |
• | Equity and Incentive Awards. During the employment term, Mr. Mudd is eligible to be considered for awards under our stock option, restricted stock, annual incentive and performance share programs, all in accordance with our compensation philosophy and programs that are in effect from time to time. Under our capital restoration plan, we must obtain the approval of OFHEO prior to providing Mr. Mudd with any non-salary compensation awards. | |
• | Life Insurance. During the employment term, Mr. Mudd is eligible to receive life insurance benefits in accordance with our life insurance policies and programs that are in effect from time to time. | |
• | Fringe Benefits. Mr. Mudd is eligible to receive certain fringe benefits in accordance with our policies, including legal expenses incurred in negotiating his employment agreement and reimbursement for a complete annual physical examination. He is also eligible to participate generally in company benefit programs that are from time to time in effect and in which our other senior officers generally are entitled to participate. | |
• | Clawback. Mr. Mudd’s bonus and other incentive-based or equity-based compensation will be subject to reimbursement to us if required by Section 304 of the Sarbanes-Oxley Act of 2002 or provisions of our compensation plans and arrangements, notwithstanding any provisions of the agreement to the contrary. |
• | Termination without Cause, for Good Reason or upon expiration of the agreement. Mr. Mudd’s employment agreement provides that if we terminate him without “Cause,” or if Mr. Mudd terminates his |
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employment for any of the specified “Good Reason” events described below, or if Mr. Mudd’s employment is terminated due to the expiration of the agreement term on December 31, 2009, he would be entitled to receive his accrued but unpaid base salary, base salary for the period through the second anniversary of the termination of his employment (subject to offset for income from other employment or self-employment, other than board service), all amounts payable (but unpaid) under our annual incentive plan with respect to any year ended on or prior to the date of termination of his employment, a prorated annual incentive plan payment for the year of termination, all amounts payable (but unpaid) under any performance share award with respect to a performance cycle that had ended as of the date of termination of his employment, a prorated performance share program payment for any performance cycle as to which at least 18 months had elapsed as of the date of termination, full vesting of any unvested restricted stock and stock options, for his stock options granted on or after the date of the employment agreement an exercise period of three years (or, if earlier, until the expiration date of the stock options), and, only in the cases of termination by us without “Cause” and termination by Mr. Mudd for a “Good Reason,” medical and dental coverage for Mr. Mudd and his spouse and coverage for his dependents (so long as they remain his dependents or, if later, until they reach the age of 21), at no cost to Mr. Mudd, until the earlier of the second anniversary of the termination of his employment and the date on which Mr. Mudd obtains comparable coverage through another employer. |
• | Termination due to serious illness or disability. With the exception of the continued medical and dental coverage, the same benefits described above would be payable in the event Mr. Mudd’s employment were to terminate by reason of serious illness or disability, subject to an offset against salary continuation for any employer-provided disability benefits. | |
• | Termination due to acceptance of senior position in U.S. federal government. If Mr. Mudd terminates his employment by reason of his acceptance of an appointment to a senior position in the U.S. federal government, he will receive his accrued but unpaid base salary, all amounts payable (but unpaid) under our annual incentive plan with respect to any year ended on or prior to the date of termination of his employment, a prorated annual incentive plan payment for the year of termination, all amounts payable (but unpaid) under any performance share award with respect to a performance cycle that had ended as of the date of termination of his employment, a prorated performance share program payment for any performance cycle as to which at least 18 months had elapsed as of the date of termination, and full vesting of any unvested restricted stock. | |
• | Termination due to death. In the event of Mr. Mudd’s death during the employment term, his estate or beneficiary, as applicable, would be entitled to his accrued but unpaid base salary, all amounts payable (but unpaid) under the annual incentive plan for any year ended on or prior to his death, a prorated annual incentive plan payment for the year of death, all amounts payable (but unpaid) under any performance share award with respect to a performance cycle that had ended on or prior to the date of death, a prorated performance share program payment for any performance cycle as to which at least 18 months had elapsed prior to the date of death, full vesting of any unvested restricted stock and stock options, and for his stock options granted on or after the date of the employment agreement an exercise period of three years (or, if earlier, until the expiration date of the stock options). | |
• | Termination due to retirement. In the event Mr. Mudd retires at or after age 65, or at an earlier age in certain situations, he would be entitled to receive his accrued but unpaid base salary, all amounts payable (but unpaid) under any performance share award with respect to a performance cycle that had ended as of the date of his retirement, a prorated performance share program payment for any performance cycle as to which at least 18 months had elapsed as of the date of his retirement, full vesting of any unvested stock options, for his stock options granted on or after the date of the employment agreement an exercise period of three years (or, if earlier, until the expiration date of the stock options), and, in the case of retirement at or after age 65, full vesting of any unvested restricted stock and, in the case of retirement at an earlier age, the Board may, in its discretion, fully vest any unvested restricted stock. | |
• | Voluntary termination and termination for Cause. If Mr. Mudd is terminated for “Cause” or if Mr. Mudd terminates his employment voluntarily (other than a voluntary termination with “Good Reason” as defined |
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in his agreement or a voluntary termination to accept an appointment to a senior position in the U.S. federal government), he would be entitled only to accrued but unpaid base salary plus such vested benefits or awards, if any, which have vested prior to such date; provided, however, that if he is terminated for “Cause,” he would not be entitled to any amounts payable (but unpaid) of any bonus or under any performance share award with respect to a performance cycle if the reason for such termination for “Cause” is substantially related to the earning of such bonus or to the performance over the performance cycle upon which the payment was based. |
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• | Immediately prior to his retirement, Mr. Raines held vested and exercisable options to purchase a total of 1,739,759 shares of common stock at exercise prices ranging from $60.3125 to $80.95 per share. Upon his retirement, he vested in options to purchase an additional 257,131 shares of common stock at exercise prices ranging from $69.43 to $78.315. Under our stock compensation plans, all options held at the time of retirement by any option holder who is at least 55 years old and who has at least 5 years of service with us remain exercisable until their initial expiration date, which is generally 10 years after grant. As a result, Mr. Raines’ vested options, including those vesting by reason of his retirement, will expire between May 2008 and January 2014. | |
• | Under our Performance Share program, for the performance cycle completed in 2003, Mr. Raines was determined in January 2004 to be entitled to receive 139,155 shares, of which he was paid 69,577 shares in January 2004 in accordance with the program. For the cycles concluding in 2004 through 2006, Mr. Raines was granted awards with the target, threshold and maximum share amounts listed in the table below, based on the achievement of the specified performance goals. However, as previously announced, because we did not have reliable financial data for years within the award cycles, the Compensation Committee and the Board of Directors decided to postpone the determination of the amount of the awards under the performance share program for the three-year performance share cycles that ended in 2004 and 2005 and to postpone payment of the second installment of shares for the three-year performance share cycle that ended in 2003 (the first installment of which was paid in January 2004). In the future, the Compensation Committee and the Board of Directors will review the performance share program and determine the amounts to be paid, if any, to participants in these PSP cycles. |
Range of Potential | ||||||||||||
Performance Share Payments | ||||||||||||
Award Cycle | Threshold | Target | Maximum | |||||||||
2004 to 2006 | 39,987 | 99,967 | 149,951 | |||||||||
2003 to 2005 | 43,002 | 107,505 | 161,258 | |||||||||
2002 to 2004 | 48,185 | 120,462 | 180,693 |
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• | Under our executive pension plan, estimated monthly payments of approximately $107,051 will be payable during the lives of Mr. Raines and his surviving spouse. | |
• | Under our qualified pension plan, Mr. Raines will receive approximately $2,640 per month during his life. After his death, Mr. Raines’ wife will receive approximately $1,320 per month during her life. | |
• | Under our plans, Mr. Raines elected to defer the receipt of earned salary and other compensation. As of August 31, 2006, Mr. Raines’ deferred balance was approximately $8.5 million. As mentioned above, our Board of Directors has not made a final determination about the amounts to be paid, if any, to participants in certain PSP cycles, which may result in a related adjustment to Mr. Raines’ deferred amounts. Pending payout, deferred amounts will be allocated by Mr. Raines among the hypothetical investment options in accordance with the plans and will receive a corresponding rate of return. | |
• | Mr. Raines is entitled to lifetime medical and dental coverage for himself and his spouse, and coverage for his dependents until they reach the age of 21 or so long as they remain his dependents, at no cost to Mr. Raines. | |
• | Consistent with our executive life insurance program, we will pay the premiums on a life insurance policy for Mr. Raines with a benefit of $5,000,000 until he reaches age 60, and a benefit of $2,500,000 thereafter. | |
• | Mr. Raines will receive retirement savings he has accumulated in our retirement savings plan (a 401(k) plan) in accordance with the terms of that plan. | |
• | Pursuant to his agreement, Mr. Raines is entitled to receive administrative services to support the provision of an office and related secretarial and administrative services during such time as he is not employed on a full-time basis. Mr. Raines must reimburse us for the fair market value of this benefit, including our cost of administration. He has not requested these services. |
• | Severance Payment. For her 16 years of service, Ms. St. John will be entitled to 78 weeks of her current base pay, totaling $794,463. | |
• | Stock Options. Ms. St. John will be entitled to accelerated vesting of options to purchase 34,429 shares of common stock, at exercise prices ranging from $69.43 to $78.315 per share, that are scheduled to vest within 12 months of her termination date. Options she holds to purchase 18,470 shares of common stock at $78.315 per share will be cancelled. Under our stock compensation plans, all options held and vested at the time of retirement by any option holder who is at least 55 years old and who has at least 5 years of service with us remain exercisable until their original expiration date, which is generally 10 years after grant. As a result, Ms. St. John’s vested options will expire between November 2007 and January 2014. |
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• | Restricted Stock. Ms. St. John will be entitled to accelerated vesting of 16,935 shares of restricted stock that are scheduled to vest within 12 months of her termination date. | |
• | Deferred Cash. In February 2006, Ms. St. John was awarded a variable long-term incentive award for the 2005 performance year, payable partly in cash and at a rate of 25% per year beginning in January 2007. Ms. St. John will be entitled to a lump sum payment of $145,695, which represents the cash payment she would have received within 12 months of her termination date. | |
• | Annual Cash Bonus. If we pay bonuses under our Annual Incentive Plan for 2006, Ms. St. John will be entitled to a lump sum prorated bonus for 2006. The total amount of bonuses that may be paid under the Annual Incentive Plan to all eligible employees is typically determined based on the achievement of corporate goals. | |
• | Performance Share Payouts. As a member of our senior management, Ms. St. John has received annual awards entitling her to receive shares of common stock based upon and subject to our meeting corporate performance objectives over three-year periods. Generally, the Compensation Committee of our Board determines in January our achievement against the goals for the three-year performance share cycle that just ended. That achievement determines the payout of the performance shares and the shares are paid out to current executives in two annual installments. |
Range of Potential | ||||||||||||
Performance Share Payments | ||||||||||||
Award Cycle | Threshold | Target | Maximum | |||||||||
2004 to 2006 | 7,772 | 19,431 | 29,147 | |||||||||
2003 to 2005 | 8,806 | 22,015 | 33,023 | |||||||||
2002 to 2004 | 9,389 | 23,473 | 35,210 |
• | Medical Coverage. Ms. St. John will be entitled to continued access to our medical and dental plans for up to five years, and Fannie Mae will pay a portion of the premiums necessary to continue her existing medicaland/or dental coverage under the Consolidated Omnibus Budget Reconciliation Act, or COBRA, for up to 18 months after her termination. Ms. St. John also will be entitled to participate in the medical coverage plan available to our retirees having the required number of years of service at a reduced cost offered to such retirees. |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
(As of December 31, 2004)
Number of Securities | ||||||||||||
Remaining Available | ||||||||||||
for Future Issuance | ||||||||||||
Under Equity | ||||||||||||
Number of Securities to | Weighted-Average | Compensation Plans | ||||||||||
be Issued Upon Exercise | Exercise Price of | (Excluding Securities | ||||||||||
of Outstanding Options, | Outstanding Options, | Reflected in First | ||||||||||
Plan Category | Warrants and Rights (#) | Warrants and Rights ($) | Column) (#) | |||||||||
Equity compensation plans approved by stockholders | 29,058,859 | (1) | $ | 67.10 | (2) | 45,853,986 | (3) | |||||
Equity compensation plans not approved by stockholders | N/A | N/A | N/A | |||||||||
Total | 29,058,859 | $ | 67.10 | 45,853,986 | ||||||||
(1) | This amount includes outstanding stock options; restricted stock units; the maximum number of shares issuable to eligible employees pursuant to our stock-based performance award; shares issuable upon the payout of deferred stock balances; the maximum number of shares that may be issued pursuant to performance share awards that have been made to members of senior management but for which no determination has yet been made regarding the final number of shares payable; and the maximum number of shares that may be issued pursuant to performance share awards that have been made to members of senior management for which a payout determination has been made but for which the shares were not paid out as of December 31, 2004. Performance share awards entitle the recipient to receive shares of common stock based upon and subject to our meeting corporate performance objectives over three-year periods. Outstanding awards, options and rights include grants under the Fannie Mae Stock Compensation Plan of 1993, the Stock |
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Compensation Plan of 2003, the 1985 Employee Stock Purchase Plan and the payout of shares deferred upon the settlement of awards made under the 1993 plan and a prior plan. | ||
(2) | The weighted average exercise price is calculated for the outstanding options and does not take into account restricted stock units, stock-based performance awards, deferred shares or the performance shares described in footnote (1). | |
(3) | This number of shares consists of 10,418,495 shares available under the 1985 Employee Stock Purchase Plan and 35,435,491 shares available under the Stock Compensation Plan of 2003 that may be issued as restricted stock, stock bonuses, stock options, or in settlement of restricted stock units, performance share awards, stock appreciation rights or other stock-based awards. No more than 1,820,369 of the shares issuable under the Stock Compensation Plan of 2003 may be issued as restricted stock or restricted stock units vesting in full in fewer than three years, performance shares with a performance period of less than one year, or bonus shares subject to similar vesting provisions or performance periods. |
• | Each non-management director is expected to own Fannie Mae common stock with a value equal to at least five times the director’s annual cash retainer (currently, five times $35,000, or $175,000). | |
• | Each non-management director has three years from the time of election or appointment to reach the expected ownership level, excluding trading blackout periods imposed by the company. |
• | Senior executives are officers holding positions at or above the level of Executive Vice President. | |
• | Each Fannie Mae senior executive is required to hold shares of Fannie Mae common stock as a multiple of the executive’s base salary, as follows: |
Job Level | Multiple of Base Salary | |||
Chief Executive Officer | five times | |||
Executive Vice President | two times |
• | Each senior executive has three years from the time of appointment to reach the expected ownership level. |
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Amount and Nature of Beneficial Ownership(1) | ||||||||||||
Common Stock | Stock Options | Total | ||||||||||
Beneficially Owned | Exercisable Within 60 Days | Common Stock | ||||||||||
Name and Position | Excluding Stock Options | of October 1, 2006 | Beneficially Owned | |||||||||
Stephen Ashley(2) | 20,747 | 24,000 | 44,747 | |||||||||
Chairman of the Board of Directors | ||||||||||||
Dennis Beresford(3) | 719 | — | 719 | |||||||||
Director | ||||||||||||
Thomas Donilon(4) | 8,243 | — | 8,243 | |||||||||
Former Executive Vice | ||||||||||||
President—Law and Policy | ||||||||||||
Kenneth Duberstein(5) | 6,111 | 26,000 | 32,111 | |||||||||
Director | ||||||||||||
Brenda Gaines(6) | 487 | — | 487 | |||||||||
Director | ||||||||||||
Thomas Gerrity(7) | 19,851 | 26,000 | 45,851 | |||||||||
Director | ||||||||||||
Karen Horn(8) | 487 | — | 487 | |||||||||
Director | ||||||||||||
Robert Levin(9) | 340,917 | 417,116 | 758,033 | |||||||||
Executive Vice President and Chief | ||||||||||||
Business Officer | ||||||||||||
Bridget Macaskill(10) | 1,062 | — | 1,062 | |||||||||
Director | ||||||||||||
Daniel Mudd(11) | 236,624 | 523,551 | 760,175 | |||||||||
President and | ||||||||||||
Chief Executive Officer | ||||||||||||
Joe Pickett(12) | 11,739 | 32,000 | 43,739 | |||||||||
Director | ||||||||||||
Leslie Rahl(13) | 3,281 | 3,333 | 6,614 | |||||||||
Director | ||||||||||||
Franklin Raines | — | 1,996,890 | 1,996,890 | |||||||||
Former Chairman of the Board and | ||||||||||||
Chief Executive Officer | ||||||||||||
Julie St. John(14) | 78,226 | 247,965 | 326,191 | |||||||||
Executive Vice President | ||||||||||||
Greg Smith(15) | 1,612 | 166 | 1,778 | |||||||||
Director | ||||||||||||
Patrick Swygert(16) | 3,520 | 9,833 | 13,353 | |||||||||
Director | ||||||||||||
Michael Williams(17) | 147,019 | 247,186 | 395,476 | |||||||||
Executive Vice President and | ||||||||||||
Chief Operating Officer | ||||||||||||
John Wulff(18) | 1,887 | 500 | 2,387 | |||||||||
Director | ||||||||||||
All directors and executive | ||||||||||||
officers as a group | ||||||||||||
(25 persons)(19) | 1,224,999 | 2,086,924 | 3,313,194 |
(1) | Beneficial ownership is determined in accordance with the rules of the SEC for computing the number of shares of common stock beneficially owned by each person and the percentage owned. Holders of restricted stock have no investment power but have sole voting power over the shares and, accordingly, these shares are included in this table. Holders of shares through our Employee Stock Ownership Plan, or ESOP, generally have no investment power but have sole voting power over the shares so these shares are also included in this table. Participants in our ESOP who |
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are at least 55 years of age and have at least 10 years of participation in the ESOP may elect to diversify out of shares of our common stock by rolling their assets into the investments in our 401(k) Plan. Additionally, although holders of shares through our ESOP have sole voting power through the power the direct the trustee of the plan to vote their shares, to the extent some holders do not provide any direction as to how to vote their shares, the plan trustee may vote those shares in the same proportion as the trustee votes the shares for which the trustee has received direction. Holders of stock options have no investment or voting power over the shares issuable upon the exercise of the options until the options are exercised. | ||
(2) | Mr. Ashley’s shares include 1,200 shares held by his spouse and 2,299 shares of restricted stock. | |
(3) | Mr. Beresford’s holdings consist of restricted stock. | |
(4) | Mr. Donilon’s shares include 100 shares held by his spouse and 37 shares held through our ESOP. Mr. Donilon left Fannie Mae in April 2005. The information presented is based on a Form 4 filed by Mr. Donilon on May 3, 2005. | |
(5) | Mr. Duberstein’s shares include 2,299 shares of restricted stock. | |
(6) | Ms. Gaines’ holdings consist of restricted stock. | |
(7) | Mr. Gerrity’s shares include 17,552 shares held jointly with his spouse and 2,299 shares of restricted stock. | |
(8) | Ms. Horn’s holdings consist of restricted stock. | |
(9) | Mr. Levin’s shares consist of 225,101 shares held jointly with his spouse and 115,816 shares of restricted stock. | |
(10) | Ms. Macaskill’s holdings consist of restricted stock. | |
(11) | Mr. Mudd’s shares include 167,752 shares of restricted stock, and do not include 63,806 restricted stock units held by Mr. Mudd over which he will obtain voting rights and investment power when the restrictions lapse. | |
(12) | Mr. Pickett’s shares include 2,299 shares of restricted stock. | |
(13) | Ms. Rahl’s shares include 200 shares held by her spouse and 2,299 shares of restricted stock. | |
(14) | Ms. St. John’s shares include 44,711 shares of restricted stock and 851 shares held through our ESOP. | |
(15) | Mr. Smith’s shares consist of restricted stock. | |
(16) | Mr. Swygert’s shares include 2,299 shares of restricted stock. | |
(17) | Mr. Williams’ shares include 6,000 shares held jointly with his spouse, 700 shares held by his daughter, 86,953 shares of restricted stock and 851 shares held through our ESOP. His beneficially owned total includes 1,271 shares of deferred stock that he could obtain within 60 days in certain circumstances. | |
(18) | Mr. Wulff’s shares consist of restricted stock. | |
(19) | The amount of shares held by all directors and executive officers as a group includes 688,523 shares of restricted stock held by our directors and executive officers, 5,142 held by them through our ESOP, 6,550 shares of stock held by their family members, 14,922 shares of restricted stock held by an executive officer’s spouse and 614 shares held through our ESOP by an executive officer’s spouse. The stock options column includes options to purchase 62,238 shares held by an officer’s spouse. The beneficially owned total includes 1,271 shares of deferred stock. The shares in this table do not include 135,417 shares of restricted stock units over which the holders will not obtain voting rights or investment power until the restrictions lapse. |
Common Stock | ||||||||
5% Holders | Beneficially Owned | Percent of Class | ||||||
Capital Research and Management Company(1) | 134,670,800 | 13.9 | % | |||||
333 South Hope Street | ||||||||
Los Angeles, CA 90071 | ||||||||
AXA Financial Inc.(2) | 66,300,303 | 6.8 | % | |||||
1290 Avenue of the Americas | ||||||||
New York, NY 10104 | ||||||||
Citigroup Inc.(3) | 53,716,795 | 5.5 | % | |||||
399 Park Avenue | ||||||||
New York, NY 10043 |
(1) | This information is based solely on information contained on a Schedule 13G/A filed with the SEC on February 10, 2006 by Capital Research and Management Company. According to the Schedule 13G/A, Capital Research and Management Company beneficially owns 134,670,800 shares of our common stock as of December 30, 2005, with sole voting power for 40,382,960 shares and sole dispositive power for all shares. |
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(2) | This information is based solely on information contained in a Schedule 13G filed with the SEC on February 14, 2006 by AXA Financial, Inc. Alliance Capital Management L.P. is a majority-owned subsidiary of AXA Financial, Inc. According to the Schedule 13G, AXA Financial beneficially owns 66,300,303 shares of our common stock, with sole voting power for 48,275,448 shares, shared voting power for 3,999,763 shares, sole dispositive power for 66,275,977 shares and shared dispositive power for 24,326 shares. | |
(3) | This information is based solely on information contained in a Schedule 13G/A filed with the SEC on February 13, 2006 by Citigroup Inc.. According to the Schedule 13G/A, Citigroup Inc. beneficially owns 53,716,795 shares of our common stock, with shared voting and dispositive power for all such shares. |
Item 13. | Certain Relationships and Related Transactions |
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Office and Secretarial Benefit | Financial Planning Assistance | |||||||
2001 | $ | 165,000 | $ | 105,000 | ||||
2002 | $ | 183,000 | $ | 120,000 | ||||
2003 | $ | 195,000 | $ | 113,000 | ||||
2004 | $ | 201,000 | $ | 115,000 | ||||
2005 | $ | 203,000 | $ | 74,000 | ||||
2006 (through October 6) | $ | 168,000 | $ | 112,000 |
Item 14. | Principal Accounting Fees and Services |
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For the Year Ended December 31, | ||||||||
Description of Fees | 2004 | 2003 | ||||||
Audit fees(1) | $ | 201,560,000 | $ | 2,721,300 | ||||
Audit-related fees(2) | — | 4,557,850 | ||||||
Tax fees(3) | — | 3,696,957 | ||||||
Total fees | $ | 201,560,000 | $ | 10,976,107 | ||||
(1) | For 2004, excludes fees paid or accrued for services provided by KPMG LLP totaling $6,010,604 for preliminary 2004 audit work. For 2004, amount includes fees paid to Deloitte & Touche LLP for the audit of our consolidated financial statements for the years 2002 to 2004 as the audits occurred contemporaneously. | |
(2) | For 2004, excludes fees paid or accrued for services provided by KPMG LLP totaling $4,721,399 related to the OFHEO special examination, $3,113,725 for REMIC pricing and closing letter fees, and $317,503 for REMIC payment data validation fees. For 2003, includes fees paid or accrued for services provided by KPMG LLP totaling $4,249,600 for REMIC pricing and closing letter fees and $308,250 for REMIC payment data validation fees. | |
(3) | For 2004, excludes fees paid or accrued for services provided by KPMG LLP totaling $735,000 for review of tax accounts, $3,862,254 for REMIC tax return services, and $23,500 for reimbursable financial advisory fees paid directly to KPMG LLP by Fannie Mae on behalf of certain of our officers. For 2003, includes fees paid or accrued for services provided by KPMG LLP totaling $3,666,957 for REMIC tax preparation and $30,000 for buy-up pool processing, and excludes $20,900 for reimbursable financial advisory fees paid directly to KPMG LLP by Fannie Mae on behalf of certain of our officers. |
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Item 15. | Exhibits, Financial Statement Schedules |
(a) | Documents filed as part of this report |
1. | Consolidated Financial Statements | |||||
Report of Independent Registered Public Accounting Firm | F-2 | |||||
Consolidated Balance Sheets as of December 31, 2004 and 2003 | F-3 | |||||
Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002 | F-4 | |||||
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 | F-5 | |||||
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2004, 2003 and 2002 | F-6 | |||||
Notes to Consolidated Financial Statements | F-7 | |||||
2. | Financial Statement Schedules | |||||
None. | ||||||
3. | Exhibits | |||||
An index to exhibits has been filed as part of this report beginning onpage E-1 and is incorporated herein by reference. |
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By: | /s/ Daniel H. Mudd |
Signature | Title | Date | ||||
/s/ Stephen B. Ashley Stephen B. Ashley | Chairman of the Board of Directors | December 6, 2006 | ||||
/s/ Daniel H. Mudd Daniel H. Mudd | President and Chief Executive Officer and Director | December 6, 2006 | ||||
/s/ Robert T. Blakely Robert T. Blakely | Executive Vice President and Chief Financial Officer | December 6, 2006 | ||||
/s/ David C. Hisey David C. Hisey | Senior Vice President and Controller | December 6, 2006 | ||||
/s/ Dennis R. Beresford Dennis R. Beresford | Director | December 6, 2006 | ||||
/s/ Kenneth M. Duberstein Kenneth M. Duberstein | Director | December 6, 2006 | ||||
/s/ Brenda J. Gaines Brenda J. Gaines | Director | December 6, 2006 |
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Signature | Title | Date | ||||
/s/ Thomas P. Gerrity Thomas P. Gerrity | Director | December 6, 2006 | ||||
/s/ Karen N. Horn, PhD. Karen N. Horn, PhD. | Director | December 6, 2006 | ||||
/s/ Bridget A. Macaskill Bridget A. Macaskill | Director | December 6, 2006 | ||||
/s/ Joe K. Pickett Joe K. Pickett | Director | December 6, 2006 | ||||
/s/ Leslie Rahl Leslie Rahl | Director | December 6, 2006 | ||||
/s/ Greg C. Smith Greg C. Smith | Director | December 6, 2006 | ||||
/s/ H. Patrick Swygert H. Patrick Swygert | Director | December 6, 2006 | ||||
/s/ John K. Wulff John K. Wulff | Director | December 6, 2006 |
243
Table of Contents
Item | Description | |||
3 | .1 | Fannie Mae Charter Act (12 U.S.C. § 1716 et seq.) (Incorporated by reference to Exhibit 3.1 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
3 | .2 | Fannie Mae Bylaws, amended as on September 19, 2006 (Incorporated by reference to Exhibit 3.1 to Fannie Mae’s Current Report onForm 8-K, filed September 25, 2006.) | ||
4 | .1 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series D (Incorporated by reference to Exhibit 4.1 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
4 | .2 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series E (Incorporated by reference to Exhibit 4.2 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
4 | .3 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series F (Incorporated by reference to Exhibit 4.3 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
4 | .4 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series G (Incorporated by reference to Exhibit 4.4 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
4 | .5 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series H (Incorporated by reference to Exhibit 4.5 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
4 | .6 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series I (Incorporated by reference to Exhibit 4.6 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
4 | .7 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series J (Incorporated by reference to Exhibit 4.7 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
4 | .8 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series K (Incorporated by reference to Exhibit 4.8 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
4 | .9 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series L (Incorporated by reference to Exhibit 4.2 to Fannie Mae’s Quarterly Report onForm 10-Q for the quarter ended March 31, 2003.) | ||
4 | .10 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series M (Incorporated by reference to Exhibit 4.2 to Fannie Mae’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2003.) | ||
4 | .11 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series N (Incorporated by reference to Exhibit 4.1 to Fannie Mae’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2003.) | ||
4 | .12 | Certificate of Designation of Terms of Fannie Mae Non-Cumulative Convertible Preferred Stock,Series 2004-1 (Incorporated by reference to Exhibit 4.1 to Fannie Mae’s Current Report onForm 8-K, filed January 4, 2005.) | ||
4 | .13 | Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series O (Incorporated by reference to Exhibit 4.2 to Fannie Mae’s Current Report onForm 8-K, filed January 4, 2005.) | ||
10 | .1 | Employment Agreement between Fannie Mae and Franklin D. Raines, as amended on June 30, 2004† (Incorporated by reference to Exhibit 10.1 to Fannie Mae’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2004.) | ||
10 | .2 | Letter Agreement between Fannie Mae and Franklin D. Raines, dated September 17, 2004† (Incorporated by reference to Exhibit 10.1 to Fannie Mae’s Current Report onForm 8-K, filed September 23, 2004.) | ||
10 | .3 | Employment Agreement between Fannie Mae and Daniel H. Mudd, as amended on June 30, 2004† (Incorporated by reference to Exhibit 10.2 to Fannie Mae’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2004.) | ||
10 | .4 | Letter Agreement between Fannie Mae and Daniel H. Mudd, dated September 18, 2004† (Incorporated by reference to Exhibit 10.2 to Fannie Mae’s Current Report onForm 8-K, filed September 23, 2004.) | ||
10 | .5 | Employment Agreement between Fannie Mae and J. Timothy Howard, as amended on June 30, 2004† (Incorporated by reference to Exhibit 10.3 to Fannie Mae’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2004.) | ||
10 | .6 | Letter Agreement between Fannie Mae and Timothy Howard, dated September 20, 2004† (Incorporated by reference to Exhibit 10.3 to Fannie Mae’s Current Report onForm 8-K, filed September 23, 2004.) | ||
10 | .7 | Letter Agreement between Fannie Mae and Robert J. Levin, dated June 19, 1990† (Incorporated by reference to Exhibit 10.5 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
10 | .8 | Letter Agreement between Fannie Mae and Adolfo Marzol, dated October 24, 1998† (Incorporated by reference to Exhibit 10.6 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) |
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Item | Description | |||
10 | .9 | Description of Fannie Mae’s Elective Deferred Compensation Plan II† | ||
10 | .10 | Description of Fannie Mae’s compensatory arrangements with its named executive officers for the year ended December 31, 2004† (Incorporated by reference to “Executive Compensation Information” under Item 11 of Fannie Mae’s Annual Report onForm 10-K for the year ended December 31, 2004.) | ||
10 | .11 | Description of Fannie Mae’s compensatory arrangements with its non-employee directors for the year ended December 31, 2004† (Incorporated by reference to “Director Compensation Information” under Item 11 of Fannie Mae’s Annual Report onForm 10-K for the year ended December 31, 2004.) | ||
10 | .12 | Form of Indemnification Agreement for Non-Management Directors of Fannie Mae (Incorporated by reference to Exhibit 10.7 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
10 | .13 | Form of Indemnification Agreement for Officers of Fannie Mae (Incorporated by reference to Exhibit 10.7 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
10 | .14 | Federal National Mortgage Association Supplemental Pension Plan† (Incorporated by reference to Exhibit 10.9 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
10 | .15 | Executive Pension Plan of the Federal National Mortgage Association† (Incorporated by reference to Exhibit 10.10 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
10 | .16 | Fannie Mae Annual Incentive Plan† (Incorporated by reference to Exhibit 10.11 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
10 | .17 | Fannie Mae Stock Compensation Plan of 2003† (Incorporated by reference to Exhibit 10.12 to Fannie Mae’s Annual Report on Form 10-K for the year ended December 31, 2003.) | ||
10 | .18 | Fannie Mae Stock Compensation Plan of 1993† | ||
10 | .19 | Fannie Mae Procedures for Deferral and Diversification of Awards† (Incorporated by reference to Exhibit 10.14 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
10 | .20 | Fannie Mae Stock Option Gain Deferral Plan† (Incorporated by reference to Exhibit 10.15 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
10 | .21 | Fannie Mae Supplemental Pension Plan of 2003† (Incorporated by reference to Exhibit 10.1 to Fannie Mae’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2003.) | ||
10 | .22 | Director’s Charitable Award Program† (Incorporated by reference to Exhibit 10.17 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
10 | .23 | Professional Services Agreement between Fannie Mae and James A. Johnson, effective January 1, 2000; Amendment dated April 18, 2005 to the Professional Services Agreement between James Johnson and Fannie Mae.† | ||
10 | .24 | Employment Agreement between Fannie Mae and David O. Maxwell, effective November 21, 1989† | ||
10 | .25 | Letter Agreement between The Duberstein Group and Fannie Mae, dated as of March 28, 2001, with Modification #1, dated February 3, 2002; Modification #2, dated March 1, 2003; and Modification #3, dated April 27, 2005 | ||
10 | .26 | Form of Nonqualified Stock Option Grant Award Document† (Incorporated by reference to Exhibit 10.3 to Fannie Mae’s Current Report onForm 8-K, filed December 9, 2004.) | ||
10 | .27 | Form of Restricted Stock Award Document† (Incorporated by reference to Exhibit 10.4 to Fannie Mae’s Current Report onForm 8-K, filed December 9, 2004.) | ||
10 | .28 | Form of Restricted Stock Units Award Document† (Incorporated by reference to Exhibit 10.5 to Fannie Mae’s Current Report onForm 8-K, filed December 9, 2004.) | ||
10 | .29 | Form of Performance Share Plan Information Sheet† (Incorporated by reference to Exhibit 10.6 to Fannie Mae’s Current Report onForm 8-K, filed December 9, 2004.) | ||
10 | .30 | Form of Nonqualified Stock Option Grant Award Document for Non-Management Directors† (Incorporated by reference to Exhibit 10.7 to Fannie Mae’s Current Report onForm 8-K, filed December 9, 2004.) | ||
10 | .31 | Form of Restricted Stock Award Document under Fannie Mae Stock Compensation Plan of 2003 for Non-Management Directors† (Incorporated by reference to Exhibit 10.8 to Fannie Mae’s Current Report onForm 8-K, filed December 9, 2004.) | ||
10 | .32 | Form of Restricted Stock Award Document under Fannie Mae Stock Compensation Plan of 1993 for Non-Management Directors† (Incorporated by reference to Exhibit 10.9 to Fannie Mae’s Current Report onForm 8-K, filed December 9, 2004.) |
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Item | Description | |||
10 | .33 | Form of Election under Fannie Mae’s Elective Deferred Compensation Plan II† (Incorporated by reference to Exhibit 10.1 to Fannie Mae’s Current Report onForm 8-K, filed November 22, 2004.) | ||
10 | .34 | Fannie Mae’s Elective Deferred Compensation Plan† (Incorporated by reference to exhibit 10.13 to Fannie Mae’s registration statement on Form 10, filed March 31, 2003.) | ||
10 | .35 | Agreement between OFHEO and Fannie Mae, September 27, 2004 (Incorporated by reference to Exhibit 10.1 to Fannie Mae’s Current Report onForm 8-K, filed September 29, 2004.) | ||
12 | .1 | Statement re: computation of ratios of earnings to fixed charges | ||
12 | .2 | Statement re: computation of ratios of earnings to combined fixed charges and preferred stock dividends | ||
31 | .1 | Certification of Chief Executive Officer pursuant to Securities Exchange ActRule 13a-14(a) | ||
31 | .2 | Certification of Chief Financial Officer pursuant to Securities Exchange ActRule 13a-14(a) | ||
32 | .1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 | ||
32 | .2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 | ||
99 | .1 | Description of Fannie Mae’s Severance Program for 2005 and 2006 (Incorporated by reference to “Executive Compensation Information” under Item 11 of Fannie Mae’s Annual Report onForm 10-K for the year ended December 31, 2004.) | ||
99 | .2 | Letter Agreement between Fannie Mae and Daniel Mudd, dated March 10, 2005 † (Incorporated by reference to Exhibit 10.2 to Fannie Mae’s Current Report onForm 8-K, filed March 11, 2005.) | ||
99 | .3 | Separation Letter Agreement between Fannie Mae and Ann Kappler, dated August 23, 2005 † | ||
99 | .4 | Employment Agreement, dated November 15, 2005, between Fannie Mae and Daniel H. Mudd † (Incorporated by reference to Exhibit 10.1 to Fannie Mae’s Current Report onForm 8-K, filed November 15, 2005.) | ||
99 | .5 | Description of Fannie Mae’s compensatory arrangements with its named executive officers for the year ended December 31, 2005 † (Incorporated by reference to Fannie Mae’s Current Report onForm 8-K, filed December 6, 2006.) | ||
99 | .6 | Description of Fannie Mae’s compensatory arrangements with its non-employee directors for the year ended December 31, 2005 † (Incorporated by reference to “Director Compensation Information” under Item 11 of Fannie Mae’s Annual Report onForm 10-K for the year ended December 31, 2004.) | ||
99 | .7 | Supplement to the Agreement of September 27, 2004 between Fannie Mae and OFHEO, dated March 7, 2005 (Incorporated by reference to Exhibit 10.1 to Fannie Mae’s Current Report onForm 8-K, filed March 11, 2005.) | ||
99 | .8 | Letters, dated September 1, 2005, setting forth an agreement between Fannie Mae and Office of Federal Housing Enterprise Oversight (OFHEO) (Incorporated by reference to Exhibit 10.1 to Fannie Mae’s Current Report onForm 8-K, filed September 8, 2005.) | ||
99 | .9 | Stipulation and Consent to the Issuance of a Consent Order, dated May 23, 2006, between Officer of Federal Housing Enterprise Oversight (OFHEO) and Fannie Mae, including Consent Order (Incorporated by reference to Exhibit 10.1 to Fannie Mae’s Current Report onForm 8-K, filed May 30, 2006.) | ||
99 | .10 | Consent of Defendant Fannie Mae with Securities and Exchange Commission (SEC), dated May 23, 2006 (Incorporated by reference to Exhibit 10.2 to Fannie Mae’s Current Report onForm 8-K, filed May 30, 2006.) | ||
99 | .11 | Separation Letter Agreement between Fannie Mae and Julie St. John, dated July 7, 2006† (Incorporated by reference to Exhibit 99.1 to Fannie Mae’s Current Report onForm 8-K, filed July 7, 2006.) | ||
99 | .12 | Consent Award Partially Resolving Damages and Deferring Further Proceedings, dated November 7, 2006, by and between Plaintiff Franklin D. Raines and Fannie Mae (Incorporated by reference to Exhibit 10.1 to Fannie Mae’s Current Report on Form 8-K, filed November 14, 2006.) | ||
99 | .13 | Guide to Fannie Mae’s 2004 Annual Report on SECForm 10-K |
† | This exhibit is a management contract or compensatory plan or arrangement. |
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As of December 31, | ||||||||
2004 | 2003 | |||||||
(Restated) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents (includes cash equivalents that may be repledged of $242 and $487 as of December 31, 2004 and 2003, respectively) | $ | 2,655 | $ | 3,395 | ||||
Restricted cash | 1,046 | 1,409 | ||||||
Federal funds sold and securities purchased under agreements to resell | 3,930 | 12,686 | ||||||
Investments in securities: | ||||||||
Trading, at fair value (includes Fannie Mae MBS of $34,350 and $42,728 as of December 31, 2004 and 2003, respectively) | 35,287 | 43,798 | ||||||
Available-for-sale, at fair value (includes Fannie Mae MBS of $315,195 and $370,905 as of December 31, 2004 and 2003, respectively) | 532,095 | 523,272 | ||||||
Total investments | 567,382 | 567,070 | ||||||
Mortgage loans: | ||||||||
Loans held for sale, at lower of cost or market | 11,721 | 13,596 | ||||||
Loans held for investment, at amortized cost | 390,000 | 385,755 | ||||||
Allowance for loan losses | (349 | ) | (290 | ) | ||||
Total loans held for investment, net of allowance | 389,651 | 385,465 | ||||||
Total loans | 401,372 | 399,061 | ||||||
Advances to lenders | 4,850 | 4,696 | ||||||
Accrued interest receivable | 4,237 | 4,450 | ||||||
Acquired property, net | 1,704 | 1,320 | ||||||
Derivative assets at fair value | 6,589 | 7,218 | ||||||
Guaranty assets | 5,924 | 4,282 | ||||||
Deferred tax assets | 6,074 | 4,082 | ||||||
Partnership investments | 8,061 | 6,421 | ||||||
Other assets | 7,110 | 6,185 | ||||||
Total assets | $ | 1,020,934 | $ | 1,022,275 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Liabilities: | ||||||||
Accrued interest payable | $ | 6,212 | $ | 6,315 | ||||
Federal funds purchased and securities sold under agreements to repurchase | 2,400 | 3,673 | ||||||
Short-term debt | 320,280 | 343,662 | ||||||
Long-term debt | 632,831 | 617,618 | ||||||
Derivative liabilities at fair value | 1,145 | 3,225 | ||||||
Reserve for guaranty losses (includes $113 and $83 as of December 31, 2004 and 2003, respectively, related to Fannie Mae MBS included in Investments in securities) | 396 | 313 | ||||||
Guaranty obligations (includes $814 and $863 as of December 31, 2004 and 2003, respectively, related to Fannie Mae MBS included in Investments in securities) | 8,784 | 6,401 | ||||||
Partnership liabilities | 2,662 | 1,792 | ||||||
Other liabilities | 7,246 | 7,003 | ||||||
Total liabilities | 981,956 | 990,002 | ||||||
Minority interests in consolidated subsidiaries | 76 | 5 | ||||||
Commitments and contingencies (see Note 20) | — | — | ||||||
Stockholders’ Equity: | ||||||||
Preferred stock, 200,000,000 shares authorized—132,175,000 shares issued and outstanding as of December 31, 2004 and 82,150,000 shares issued and outstanding as of December 31, 2003 | 9,108 | 4,108 | ||||||
Common stock, no par value, no maximum authorization—1,129,090,420 shares issued as of December 31, 2004 and 2003; 969,075,573 shares and 970,358,844 shares outstanding as of December 31, 2004 and 2003, respectively | 593 | 593 | ||||||
Additional paid-in capital | 1,982 | 1,985 | ||||||
Retained earnings | 30,705 | 27,923 | ||||||
Accumulated other comprehensive income | 4,387 | 5,315 | ||||||
46,775 | 39,924 | |||||||
Less: Treasury stock, at cost, 160,014,847 shares and 158,731,576 shares as of December 31, 2004 and 2003, respectively | 7,873 | 7,656 | ||||||
Total stockholders’ equity | 38,902 | 32,268 | ||||||
Total liabilities and stockholders’ equity | $ | 1,020,934 | $ | 1,022,275 | ||||
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For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
Interest income: | ||||||||||||
Investments in securities | $ | 26,428 | $ | 27,694 | $ | 31,054 | ||||||
Mortgage loans | 21,390 | 21,370 | 19,870 | |||||||||
Total interest income | 47,818 | 49,064 | 50,924 | |||||||||
Interest expense: | ||||||||||||
Short-term debt | 4,399 | 4,012 | 5,399 | |||||||||
Long-term debt | 25,338 | 25,575 | 27,099 | |||||||||
Total interest expense | 29,737 | 29,587 | 32,498 | |||||||||
Net interest income | 18,081 | 19,477 | 18,426 | |||||||||
Guaranty fee income (includes imputed interest of $833, $314 and $107 for 2004, 2003 and 2002, respectively) | 3,604 | 3,281 | 2,516 | |||||||||
Investment losses, net | (362 | ) | (1,231 | ) | (501 | ) | ||||||
Derivatives fair value losses, net | (12,256 | ) | (6,289 | ) | (12,919 | ) | ||||||
Debt extinguishment losses, net | (152 | ) | (2,692 | ) | (814 | ) | ||||||
Loss from partnership investments | (702 | ) | (637 | ) | (509 | ) | ||||||
Fee and other income | 404 | 340 | 89 | |||||||||
Non-interest loss | (9,464 | ) | (7,228 | ) | (12,138 | ) | ||||||
Administrative expenses: | ||||||||||||
Salaries and employee benefits | 892 | 849 | 679 | |||||||||
Professional services | 435 | 238 | 218 | |||||||||
Occupancy expenses | 185 | 166 | 165 | |||||||||
Other administrative expenses | 144 | 201 | 94 | |||||||||
Total administrative expenses | 1,656 | 1,454 | 1,156 | |||||||||
Minority interest in earnings of consolidated subsidiaries | (8 | ) | — | — | ||||||||
Provision for credit losses | 352 | 365 | 284 | |||||||||
Foreclosed property expense (income) | 11 | (12 | ) | (11 | ) | |||||||
Other expenses | 607 | 156 | 105 | |||||||||
Total expenses | 2,618 | 1,963 | 1,534 | |||||||||
Income before federal income taxes, extraordinary gains (losses), and cumulative effect of change in accounting principle | 5,999 | �� | 10,286 | 4,754 | ||||||||
Provision for federal income taxes | 1,024 | 2,434 | 840 | |||||||||
Income before extraordinary gains (losses) and cumulative effect of change in accounting principle | 4,975 | 7,852 | 3,914 | |||||||||
Extraordinary gains (losses), net of tax effect | (8 | ) | 195 | — | ||||||||
Cumulative effect of change in accounting principle, net of tax effect | — | 34 | — | |||||||||
Net income | $ | 4,967 | $ | 8,081 | $ | 3,914 | ||||||
Preferred stock dividends and issuance costs at redemption | (165 | ) | (150 | ) | (111 | ) | ||||||
Net income available to common stockholders | $ | 4,802 | $ | 7,931 | $ | 3,803 | ||||||
Basic earnings per share: | ||||||||||||
Earnings before extraordinary gains (losses) and cumulative effect of change in accounting principle | $ | 4.96 | $ | 7.88 | $ | 3.83 | ||||||
Extraordinary gains (losses), net of tax effect | (0.01 | ) | 0.20 | — | ||||||||
Cumulative effect of change in accounting principle, net of tax effect | — | 0.04 | — | |||||||||
Basic earnings per share | $ | 4.95 | $ | 8.12 | $ | 3.83 | ||||||
Diluted earnings per share: | ||||||||||||
Earnings before extraordinary gains (losses) and cumulative effect of change in accounting principle | $ | 4.94 | $ | 7.85 | $ | 3.81 | ||||||
Extraordinary gains (losses), net of tax effect | — | 0.20 | — | |||||||||
Cumulative effect of change in accounting principle, net of tax effect | — | 0.03 | — | |||||||||
Diluted earnings per share | $ | 4.94 | $ | 8.08 | $ | 3.81 | ||||||
Cash dividends per common share | $ | 2.08 | $ | 1.68 | $ | 1.32 | ||||||
Weighted-average common shares outstanding: | ||||||||||||
Basic | 970 | 977 | 992 | |||||||||
Diluted | 973 | 981 | 998 |
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For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
Cash flows provided by operating activities: | ||||||||||||
Net income | $ | 4,967 | $ | 8,081 | $ | 3,914 | ||||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||||||
Amortization of mortgage loans and security cost basis adjustments | 1,249 | 1,852 | (107 | ) | ||||||||
Amortization of debt deferred price adjustments | 4,908 | 4,517 | 5,661 | |||||||||
Provision for credit losses | 352 | 365 | 284 | |||||||||
Valuation losses | 433 | 1,433 | 261 | |||||||||
Debt extinguishment losses, net | 152 | 2,692 | 814 | |||||||||
Debt foreign currency transaction losses, net | 304 | 707 | 492 | |||||||||
Loss from partnership investments | 702 | 637 | 509 | |||||||||
Current and deferred federal income taxes | (1,435 | ) | (1,083 | ) | (2,186 | ) | ||||||
Extraordinary (gains) losses, net of tax effect | 8 | (195 | ) | — | ||||||||
Cumulative effect of change in accounting principle, net of tax effect | — | (34 | ) | — | ||||||||
Derivatives fair value adjustments | (1,395 | ) | (5,811 | ) | (7,973 | ) | ||||||
Purchases of loans held for sale | (30,198 | ) | (72,519 | ) | (50,708 | ) | ||||||
Proceeds from repayments of loans held for sale | 2,493 | 9,703 | 4,781 | |||||||||
Proceeds from sales of loans held for sale | 66 | 8 | 44 | |||||||||
Net decrease in trading securities, excluding non-cash transfers | 58,396 | 106,679 | 86,768 | |||||||||
Net change in: | ||||||||||||
Guaranty assets | (2,033 | ) | (5,018 | ) | (17 | ) | ||||||
Guaranty obligations | 2,926 | 7,745 | 2 | |||||||||
Other, net | (339 | ) | (1,536 | ) | 1,092 | |||||||
Net cash provided by operating activities | 41,556 | 58,223 | 43,631 | |||||||||
Cash flows used in investing activities: | ||||||||||||
Purchases ofavailable-for-sale securities | (234,081 | ) | (503,313 | ) | (347,101 | ) | ||||||
Proceeds from maturities ofavailable-for-sale securities | 196,606 | 339,878 | 279,631 | |||||||||
Proceeds from sales ofavailable-for-sale securities | 18,503 | 129,487 | 40,061 | |||||||||
Purchases of loans held for investment | (55,996 | ) | (92,668 | ) | (51,674 | ) | ||||||
Proceeds from repayments of loans held for investment | 100,727 | 164,822 | 101,322 | |||||||||
Advances to lenders | (53,865 | ) | (180,338 | ) | (141,869 | ) | ||||||
Net proceeds from disposition of foreclosed properties | 4,284 | 3,355 | 2,472 | |||||||||
Contributions to partnership investments | (1,934 | ) | (1,675 | ) | (1,755 | ) | ||||||
Proceeds from partnership investments | 208 | 60 | 44 | |||||||||
Net change in federal funds sold and securities purchased under agreements to resell | 8,756 | (12,355 | ) | 5,281 | ||||||||
Net cash used in investing activities | (16,792 | ) | (152,747 | ) | (113,588 | ) | ||||||
Cash flows (used in) provided by financing activities: | ||||||||||||
Proceeds from issuance of short-term debt | 1,925,159 | 1,944,544 | 1,530,204 | |||||||||
Payments to redeem short-term debt | (1,965,693 | ) | (1,904,640 | ) | (1,522,576 | ) | ||||||
Proceeds from issuance of long-term debt | 253,880 | 349,356 | 240,657 | |||||||||
Payments to redeem long-term debt | (240,031 | ) | (285,872 | ) | (178,933 | ) | ||||||
Repurchase of common and redemption of preferred stock | (523 | ) | (1,390 | ) | (1,792 | ) | ||||||
Proceeds from issuance of common and preferred stock | 5,162 | 1,488 | 1,119 | |||||||||
Payment of cash dividends on common and preferred stock | (2,185 | ) | (1,796 | ) | (1,410 | ) | ||||||
Net change in federal funds purchased and securities sold under agreements to repurchase | (1,273 | ) | (5,497 | ) | 3,369 | |||||||
Net cash (used in) provided by financing activities | (25,504 | ) | 96,193 | 70,638 | ||||||||
Net increase (decrease) in cash and cash equivalents | (740 | ) | 1,669 | 681 | ||||||||
Cash and cash equivalents at beginning of period | 3,395 | 1,726 | 1,045 | |||||||||
Cash and cash equivalents at end of period | $ | 2,655 | $ | 3,395 | $ | 1,726 | ||||||
Cash paid during the period for: | ||||||||||||
Interest | $ | 29,777 | $ | 30,322 | $ | 33,302 | ||||||
Income taxes | 2,470 | 3,516 | 3,032 | |||||||||
Non-cash transfers: | ||||||||||||
Net transfers between investments in securities to mortgage loans | $ | 17,750 | $ | 71,560 | $ | 68,815 | ||||||
Transfers from advances to lenders to investments in securities | 53,705 | 195,964 | 130,651 | |||||||||
Mortgage loans acquired by assuming debt | 13,372 | 9,274 | 1 | |||||||||
Transfers of loans held for sale to loans held for investment | 15,543 | 51,855 | 32,764 | |||||||||
Transfers from mortgage loans to acquired property, net | 4,307 | 3,580 | 2,407 | |||||||||
Issuance of common stock from treasury stock for stock option and benefit plans | 306 | 149 | 127 |
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Accumulated | ||||||||||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||||||||||
Shares Outstanding | Preferred | Common | Paid-In | Retained | Comprehensive | Treasury | Stockholders’ | |||||||||||||||||||||||||||||
Preferred | Common | Stock | Stock | Capital | Earnings | Income | Stock | Equity | ||||||||||||||||||||||||||||
Balance as of December 31, 2001, as previously reported | 46 | 997 | $ | 2,303 | $ | 593 | $ | 1,651 | $ | 26,175 | $ | (7,065 | ) | $ | (5,539 | ) | $ | 18,118 | ||||||||||||||||||
Cumulative effect of restatement adjustments (net of tax of $3.0 billion) | — | — | — | — | 92 | (7,041 | ) | 12,087 | — | 5,138 | ||||||||||||||||||||||||||
Balance as of December 31, 2001 (Restated) | 46 | 997 | 2,303 | 593 | 1,743 | 19,134 | 5,022 | (5,539 | ) | 23,256 | ||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||
Net income (Restated) | — | — | — | — | — | 3,914 | — | — | 3,914 | |||||||||||||||||||||||||||
Other comprehensive income, net of tax effect: | ||||||||||||||||||||||||||||||||||||
Unrealized gains onavailable-for-sale securities (net of tax of $3.6 billion) | — | — | — | — | — | — | 6,647 | — | 6,647 | |||||||||||||||||||||||||||
Reclassification adjustment for gains included in net income | — | — | — | — | — | — | (43 | ) | — | (43 | ) | |||||||||||||||||||||||||
Unrealized losses on guaranty assets and guaranty fee buy-ups (net of tax of $83 million) | — | — | — | — | — | — | (154 | ) | — | (154 | ) | |||||||||||||||||||||||||
Net cash flow hedging losses | — | — | — | — | — | — | (3 | ) | — | (3 | ) | |||||||||||||||||||||||||
Minimum pension liability (net of tax of $1 million) | — | — | — | — | — | — | (1 | ) | — | (1 | ) | |||||||||||||||||||||||||
Total comprehensive income (Restated) | 10,360 | |||||||||||||||||||||||||||||||||||
Common stock dividends ($1.32 per share in 2002) | — | — | — | — | — | (1,312 | ) | — | — | (1,312 | ) | |||||||||||||||||||||||||
Preferred stock: | ||||||||||||||||||||||||||||||||||||
Preferred dividends | — | — | — | — | — | (98 | ) | — | — | (98 | ) | |||||||||||||||||||||||||
Preferred stock issued | 20 | — | 1,000 | — | (9 | ) | — | — | — | 991 | ||||||||||||||||||||||||||
Preferred stock redeemed | (13 | ) | — | (625 | ) | — | — | — | — | — | (625 | ) | ||||||||||||||||||||||||
Treasury stock: | ||||||||||||||||||||||||||||||||||||
Treasury stock acquired | — | (15 | ) | — | — | — | — | — | (1,167 | ) | (1,167 | ) | ||||||||||||||||||||||||
Treasury stock issued for stock options and benefit plans | — | 3 | — | — | 67 | — | — | 127 | 194 | |||||||||||||||||||||||||||
Treasury stock issued to Fannie Mae Foundation | — | 4 | — | — | 136 | — | — | 164 | 300 | |||||||||||||||||||||||||||
Balance as of December 31, 2002 (Restated) | 53 | 989 | 2,678 | 593 | 1,937 | 21,638 | 11,468 | (6,415 | ) | 31,899 | ||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||
Net income (Restated) | — | — | — | — | — | 8,081 | — | — | 8,081 | |||||||||||||||||||||||||||
Other comprehensive income, net of tax effect: | ||||||||||||||||||||||||||||||||||||
Unrealized losses onavailable-for-sale securities (net of tax of $3.4 billion ) | — | — | — | — | — | — | (6,278 | ) | — | (6,278 | ) | |||||||||||||||||||||||||
Reclassification adjustment for losses included in net income | — | — | — | — | — | — | 57 | — | 57 | |||||||||||||||||||||||||||
Unrealized gains on guaranty assets and guaranty fee buy-ups (net of tax of $47 million) | — | — | — | — | — | — | 88 | — | 88 | |||||||||||||||||||||||||||
Net cash flow hedging losses | — | — | — | — | — | — | (18 | ) | — | (18 | ) | |||||||||||||||||||||||||
Minimum pension liability (net of tax of $1 million) | — | — | — | — | — | — | (2 | ) | — | (2 | ) | |||||||||||||||||||||||||
Total comprehensive income (Restated) | 1,928 | |||||||||||||||||||||||||||||||||||
Common stock dividends ($1.68 per share in 2003) | — | — | — | — | — | (1,646 | ) | — | — | (1,646 | ) | |||||||||||||||||||||||||
Preferred stock: | ||||||||||||||||||||||||||||||||||||
Preferred dividends | — | — | — | — | — | (150 | ) | — | — | (150 | ) | |||||||||||||||||||||||||
Preferred stock issued | 29 | — | 1,430 | — | (13 | ) | — | — | — | 1,417 | ||||||||||||||||||||||||||
Treasury stock: | ||||||||||||||||||||||||||||||||||||
Treasury stock acquired | — | (22 | ) | — | — | — | — | — | (1,390 | ) | (1,390 | ) | ||||||||||||||||||||||||
Treasury stock issued for stock options and benefit plans | — | 3 | — | — | 61 | — | — | 149 | 210 | |||||||||||||||||||||||||||
Balance as of December 31, 2003 (Restated) | 82 | 970 | 4,108 | 593 | 1,985 | 27,923 | 5,315 | (7,656 | ) | 32,268 | ||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 4,967 | — | — | 4,967 | |||||||||||||||||||||||||||
Other comprehensive income, net of tax effect: | ||||||||||||||||||||||||||||||||||||
Unrealized losses onavailable-for-sale securities (net of tax of $483 million ) | — | — | — | — | — | — | (897 | ) | — | (897 | ) | |||||||||||||||||||||||||
Reclassification adjustment for gains included in net income | — | — | — | — | — | — | (17 | ) | — | (17 | ) | |||||||||||||||||||||||||
Unrealized losses on guaranty assets and guaranty fee buy-ups (net of tax of $4 million) | — | — | — | — | — | — | (8 | ) | — | (8 | ) | |||||||||||||||||||||||||
Net cash flow hedging losses | — | — | — | — | — | — | (3 | ) | — | (3 | ) | |||||||||||||||||||||||||
Minimum pension liability (net of tax of $2 million) | — | — | — | — | — | — | (3 | ) | — | (3 | ) | |||||||||||||||||||||||||
Total comprehensive income | 4,039 | |||||||||||||||||||||||||||||||||||
Common stock dividends ($2.08 per share in 2004) | — | — | — | — | — | (2,020 | ) | — | — | (2,020 | ) | |||||||||||||||||||||||||
Preferred stock: | ||||||||||||||||||||||||||||||||||||
Preferred dividends | — | — | — | — | — | (165 | ) | — | — | (165 | ) | |||||||||||||||||||||||||
Preferred stock issued | 50 | — | 5,000 | — | (75 | ) | — | — | — | 4,925 | ||||||||||||||||||||||||||
Treasury stock: | ||||||||||||||||||||||||||||||||||||
Treasury stock acquired | — | (7 | ) | — | — | — | — | — | (523 | ) | (523 | ) | ||||||||||||||||||||||||
Treasury stock issued for stock options and benefit plans | — | 6 | — | — | 72 | — | — | 306 | 378 | |||||||||||||||||||||||||||
Balance as of December 31, 2004 | 132 | 969 | $ | 9,108 | $ | 593 | $ | 1,982 | $ | 30,705 | $ | 4,387 | $ | (7,873 | ) | $ | 38,902 | |||||||||||||||||||
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1. | Restatement of Previously Issued Financial Statements |
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For the Year Ended December 31, | ||||||||
2003 | 2002 | |||||||
(Dollars in millions, except per share data) | ||||||||
Net income available to common stockholders, as previously reported | $ | 7,755 | $ | 4,508 | ||||
Restatement adjustments for: | ||||||||
Debt and derivatives | 4,356 | (5,877 | ) | |||||
Commitments | (1,826 | ) | 5,387 | |||||
Investments in securities | (332 | ) | (715 | ) | ||||
MBS trust consolidation and sale accounting | (226 | ) | (59 | ) | ||||
Financial guaranties and master servicing | 175 | 178 | ||||||
Amortization of cost basis adjustments | (1,348 | ) | 135 | |||||
Other adjustments | (926 | ) | (343 | ) | ||||
Total impact of restatement adjustments before federal income taxes, extraordinary gains (losses) and cumulative effect of change in accounting principle | (127 | ) | (1,294 | ) | ||||
Benefit for federal income taxes | (259 | ) | (589 | ) | ||||
Extraordinary gains, net of tax effect | 195 | — | ||||||
Cumulative effect of a change in accounting principle, net of tax effect | (151 | ) | — | |||||
Total impact of restatement adjustments | 176 | (705 | ) | |||||
Net income available to common stockholders, as restated | $ | 7,931 | $ | 3,803 | ||||
Basic earnings per share: | ||||||||
As previously reported | $ | 7.93 | $ | 4.54 | ||||
Total impact of restatement adjustments | 0.19 | (0.71 | ) | |||||
As restated | $ | 8.12 | $ | 3.83 | ||||
Diluted earnings per share: | ||||||||
As previously reported | $ | 7.91 | $ | 4.52 | ||||
Total impact of restatement adjustments | 0.17 | (0.71 | ) | |||||
As restated | $ | 8.08 | $ | 3.81 | ||||
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• | Accounting for partnership investments. We incorrectly accounted for a portion of our low-income housing tax credit (“LIHTC”) and other partnership investments using the effective yield method instead |
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of using the equity method of accounting. The correction of this error resulted in changes in the carrying amount of these investments in the consolidated balance sheets, the recognition of our obligations to fund the partnerships, and changes in the income recognition on these investments in the consolidated statements of income. Additionally, we failed to consolidate a portion of the LIHTC and other partnership investments in which we were deemed to be the primary beneficiary pursuant to FIN 46R, which resulted in the reversal of any previously recorded investment and recognition of the underlying assets and liabilities of the entity in the consolidated balance sheets and, at the same time, we incorrectly consolidated some partnership investments which had the reverse effect. We also made errors in the capitalization of interest expense, measurement of impairment, and the recognition of our obligations to fund our partnership investments. The correction of these errors resulted in changes in the amount of interest expense and impairment recognized in the consolidated statements of income. Lastly, we made errors in the computation of net operating losses and tax credits allocated to us from these partnerships. The correction of these errors resulted in changes in “Deferred tax assets” in the consolidated balance sheets and changes in the “Provision for federal income taxes” in the consolidated statements of income. These restatement adjustments resulted in a pre-tax decrease in net income of $293 million and $199 million for the years ended December 31, 2003 and 2002, respectively. In addition to the tax provision recorded for the partnership investments restatement adjustments, we also recorded a decrease in federal income tax expense of $138 million and $206 million due to changes in the recognition and classification of related tax credits and net operating losses for the years ended December 31, 2003 and 2002, respectively. These restatement adjustments also impacted the consolidated balance sheets, resulting in an increase of $791 million and $1.2 billion in total assets and an increase of $878 million and $1.3 billion in total liabilities as of December 31, 2003 and 2002, respectively. |
• | Classification of loans held for sale. We incorrectly classified loans held for securitization at a future date as HFI loans rather than HFS loans pursuant to SFAS No. 65,Accounting for Certain Mortgage Banking Activities(“SFAS 65”). Accordingly, we did not record lower of cost or market (“LOCOM”) adjustments on these loans. To correct this error, we recorded an adjustment to reclassify such loans from HFI to HFS and recorded an associated LOCOM adjustment. These restatement adjustments resulted in a pre-tax decrease in net income of $303 million and $40 million for the years ended December 31, 2003 and 2002, respectively. | |
• | Provision for credit losses. We incorrectly recorded the “Provision for credit losses” due to errors associated with the “Allowance for loan losses,” “Reserve for guaranty losses,” real estate owned (“REO”) and troubled debt restructurings (“TDR”). |
— | We made errors in developing our estimates of the “Allowance for loan losses” and the “Reserve for guaranty losses,” which resulted in an understatement of the provision for credit losses. These errors were primarily related to the use of inappropriate data in the calculation of the allowance and reserve, such as incorrect loan populations, inaccurate default statistics and inaccurate loss severity in the event that loans default. We also made judgmental adjustments to the calculated allowance without adequate support and incorrectly included an estimate of credit enhancement collections in the estimate of the “Allowance for loan losses.” Estimates of recoveries from credit enhancements that were not entered into contemporaneously or in contemplation of a guaranty or loan purchase should not have been included in the overall estimate of the allowance or the reserve. As a result of misclassifying certain loans as HFI, we incorrectly recorded an “Allowance for loan losses” on these loans. Finally, we did not properly allocate the reserve between the “Allowance for loan losses” and the “Reserve for guaranty losses.” To correct these errors, we recalculated the allowance and reserve with updated information and supportable data, reviewed and documented any judgmental adjustments and appropriately applied estimates of recoveries from credit enhancements to the loan population. | |
— | We made errors in calculating loan charge-off amounts. These errors were related to REO and foreclosed property expense, including making inappropriate determinations of the initial cost basis of |
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— | We historically did not recognize modifications that granted concessions to borrowers as TDRs pursuant to SFAS No. 114,Accounting by Creditors for Impairment of a Loan (an amendment of FASB Statement No. 5 and 15) (“SFAS 114”). To correct this error, we recognized these modifications as TDRs and recorded an adjustment to the “Allowance for loan losses” and the “Provision for credit losses” in the consolidated balance sheets and consolidated statements of income, respectively. |
The restatement adjustments associated with these errors resulted in a pre-tax decrease in net income of $278 million and $201 million as well as an increase in the provision for credit losses of $273 million and $164 million for the years ended December 31, 2003 and 2002, respectively. |
• | Early funding. We offer early funding options to lenders that allow them to receive cash payments for mortgage loans that will be securitized into Fannie Mae MBS at a future date. A corresponding forward commitment to sell the security that will be backed by the mortgage loans is required to be delivered with the mortgage loans and is executed on the settlement date of the commitment. We incorrectly recorded these transactions as HFS loans prior to the actual creation of the Fannie Mae MBS when we were the intended purchaser of the MBS. The impact of correcting this error was to remove any previous HFS loans from these transactions and record the transactions as “Advances to lenders,” carried at amortized cost, in the consolidated balance sheets, resulting in a decrease of $4.7 billion and $20.5 billion in “Mortgage loans” with a corresponding increase in “Advances to lenders” as of December 31, 2003 and 2002, respectively. | |
• | Collateral associated with derivatives contracts. We did not record cash collateral we received associated with some derivatives contracts. The impact of correcting this error was to record additional “Cash and cash equivalents” and “Restricted cash” of $3.4 billion and $1.1 billion and a corresponding liability to our derivative counterparties in “Other liabilities” as of December 31, 2003 and 2002, respectively. |
• | Accounting for reverse mortgages. We made errors in accounting for reverse mortgages. When computing interest income on reverse mortgages we did not use the expected life of the borrower and house price expectations in the interest income calculations and did not apply the retrospective level yield method. To correct this error, we recalculated interest income for these mortgages and recorded the change in “Interest income” in the consolidated statements of income. We also incorrectly recorded loan loss reserves on these mortgages. To correct this error, we adjusted the “Allowance for loan losses” and the “Provision for credit losses” in the consolidated balance sheets and consolidated statements of income, respectively. | |
• | Accrued interest on delinquent loans. We incorrectly included a recovery rate, which was based on historic trends of loans that subsequently changed to current payment status, in calculating accrued interest on delinquent loans. The effect of this error was to record interest income on loans that should have been on nonaccrual status. The correction of this error resulted in the reversal of interest income recorded in the periods when loans should have been on nonaccrual status. | |
• | Amortization of prepaid mortgage insurance. We amortized prepaid mortgage insurance over a period that is not representative of the period in which we received the benefits of the mortgage insurance. To correct this error, we recalculated amortization of this mortgage insurance and recorded the difference in “Other expenses” in the consolidated statements of income. |
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• | Computation of interest income. We incorrectly calculated interest income on certain investments. The calculations utilized a convention that was based on the average number of days of interest in a month regardless of the actual number of days in the month. We corrected the calculation of interest using the actual number of days in the month and adjusted the timing of interest income recognition. | |
• | Mortgage insurance contract. We entered into a mortgage insurance contract that did not transfer sufficient underlying risk of economic loss to the insurer and therefore did not qualify as mortgage insurance for accounting purposes. We incorrectly amortized the premiums paid as an expense. To correct this error, we recorded premiums paid on the policy as a deposit, reducing such deposit as recoveries from the policy were received. | |
• | Stock-based compensation. We made errors in the computation and classification of stock-based compensation, including the misclassification of some awards as non-compensatory when they were compensatory. The impact of correcting these errors resulted in the recognition of additional “Salaries and employee benefits expense” in the consolidated statements of income, a decrease in “Other liabilities” and an increase in “Additional paid-in capital” in the consolidated balance sheets. None of these errors related to awards that were not properly authorized and priced. |
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Restatement Adjustments for: | ||||||||||||||||||||||||||||||||||||||||
Financial | ||||||||||||||||||||||||||||||||||||||||
MBS Trust | Guaranties | |||||||||||||||||||||||||||||||||||||||
As | Consolidation | and | Amortization | Total | ||||||||||||||||||||||||||||||||||||
Previously | Debt and | Investments | and Sale | Master | of Cost Basis | Other | Restatement | As | ||||||||||||||||||||||||||||||||
Reported(a) | Derivatives | Commitments | in Securities | Accounting | Servicing | Adjustments | Adjustments | Adjustments | Restated | |||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||
Investments in securities | $ | 712,763 | $ | — | $ | 3,479 | $ | 5,458 | $ | (153,971 | ) | $ | — | $ | (401 | ) | $ | (258 | ) | $ | (145,693 | )(b) | $ | 567,070 | ||||||||||||||||
Mortgage loans | 240,844 | — | 874 | 115 | 162,780 | — | (519 | ) | (5,033 | ) | 158,217 | (c) | 399,061 | |||||||||||||||||||||||||||
Derivative assets at fair value | 8,191 | (1,014 | ) | 8 | — | — | — | — | 33 | (973 | )(d) | 7,218 | ||||||||||||||||||||||||||||
Guaranty assets | 5,666 | — | — | — | (200 | ) | (1,184 | ) | — | — | (1,384 | )(e) | 4,282 | |||||||||||||||||||||||||||
Deferred tax assets | 9,142 | (2,221 | ) | (2,613 | ) | (646 | ) | (175 | ) | (106 | ) | 332 | 369 | (5,060 | )(f) | 4,082 | ||||||||||||||||||||||||
Other assets | 32,963 | (1,760 | ) | 3,097 | (3,685 | ) | 487 | (411 | ) | 10 | 9,861 | 7,599 | (g) | 40,562 | ||||||||||||||||||||||||||
Total assets | $ | 1,009,569 | $ | (4,995 | ) | $ | 4,845 | $ | 1,242 | $ | 8,921 | $ | (1,701 | ) | $ | (578 | ) | $ | 4,972 | $ | 12,706 | $ | 1,022,275 | |||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Debt | $ | 958,064 | $ | (6,748 | ) | $ | — | $ | — | $ | 9,906 | $ | — | $ | — | $ | 58 | $ | 3,216 | (h) | $ | 961,280 | ||||||||||||||||||
Derivative liabilities at fair value | 1,600 | 1,632 | (7 | ) | — | — | — | — | — | 1,625 | (d) | 3,225 | ||||||||||||||||||||||||||||
Guaranty obligations | 5,666 | — | — | — | (796 | ) | 1,531 | — | — | 735 | (i) | 6,401 | ||||||||||||||||||||||||||||
Other liabilities | 21,815 | (4,002 | ) | (1 | ) | 37 | (507 | ) | (3,442 | ) | 39 | 5,157 | (2,719 | )(j) | 19,096 | |||||||||||||||||||||||||
Total liabilities | 987,145 | (9,118 | ) | (8 | ) | 37 | 8,603 | (1,911 | ) | 39 | 5,215 | 2,857 | 990,002 | |||||||||||||||||||||||||||
Minority interests in consolidated subsidiaries | 51 | — | — | — | — | — | — | (46 | ) | (46 | ) | 5 | ||||||||||||||||||||||||||||
Stockholders’ Equity: | ||||||||||||||||||||||||||||||||||||||||
Retained earnings | 35,496 | (8,079 | ) | 2,399 | (1,106 | ) | 118 | 101 | (688 | ) | (318 | ) | (7,573 | )(k) | 27,923 | |||||||||||||||||||||||||
Accumulated other comprehensive income (loss) | (12,032 | ) | 12,202 | 2,454 | 2,311 | 200 | 109 | 71 | — | 17,347 | (l) | 5,315 | ||||||||||||||||||||||||||||
Other stockholders’ equity | (1,091 | ) | — | — | — | — | — | — | 121 | 121 | (970 | ) | ||||||||||||||||||||||||||||
Total stockholders’ equity | 22,373 | 4,123 | 4,853 | 1,205 | 318 | 210 | (617 | ) | (197 | ) | 9,895 | 32,268 | ||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,009,569 | $ | (4,995 | ) | $ | 4,845 | $ | 1,242 | $ | 8,921 | $ | (1,701 | ) | $ | (578 | ) | $ | 4,972 | $ | 12,706 | $ | 1,022,275 | |||||||||||||||||
(a) | Certain previously reported balances have been reclassified to conform to the current condensed consolidated balance sheet presentation, as described in “Note 2, Summary of Significant Accounting Policies.” | |
(b) | Reflects the impact of MBS trust consolidation and sale accounting; the derecognition of HTM securities at amortized cost and recognition of AFS and trading securities at fair value; the reversal of the SFAS 149 transition adjustment and recognition of revised securities commitment basis adjustments; the recognition of revised amortization on securities cost basis adjustments; and the derecognition of securities related to failed dollar roll repurchase transactions that did not meet the criteria for secured borrowing accounting. | |
(c) | Reflects the impact of MBS trust consolidation and sale accounting; the reclassification of “Mortgage loans” to “Advances to lenders;” the recognition of revised mortgage loan commitment basis adjustments; the recognition of the LOCOM adjustment for loans classified as HFS; and the recognition of revised amortization on mortgage loan cost basis adjustments. | |
(d) | Reflects the reclassification of interest rate swap accruals from accrued interest and recognition of derivative fair value adjustments. | |
(e) | Reflects the impairment of guaranty assets; the reversal ofbuy-up amounts included in the basis of the guaranty assets; and the derecognition of guaranty arrangements upon consolidation. | |
(f) | Reflects the impact of restatement adjustments on deferred taxes and the correction of tax credit-related errors associated with partnership investments. | |
(g) | Reflects the reclassification of interest rate swap accruals to “Derivative assets at fair value;” the reclassification of “Advances to lenders” from “Mortgage loans;” the impairment of buy-ups; the recognition of “Restricted cash” and |
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“Cash and cash equivalents” related to collateral received from derivatives counterparties; and the impact of cost basis transfers between error categories. | ||
(h) | Reflects the reversal of previously recorded unrealized gains and losses on the hedged items associated with fair value hedges; the recognition of revised amortization of debt basis adjustments; and the recognition of short-term and long-term debt upon consolidation of MBS trusts in which we own less than 100% of the related securities. | |
(i) | Reflects the valuation adjustment related to the guaranty obligations; the reclassification of buy-downs and risk-based pricing adjustments from “Other liabilities;” and the derecognition of guaranty arrangements upon consolidation. | |
(j) | Reflects the reclassification of interest rate swap accruals to “Derivative liabilities at fair value;” the reversal of short-term debt associated with failed dollar roll repurchase transactions; the reclassification of buy-downs and risk-based pricing adjustments to “Guaranty obligations;” and the recognition of liabilities to derivative counterparties associated with restricted cash. | |
(k) | Reflects the recognition of derivative fair value adjustments to the consolidated statements of income and other income or expense related adjustments. | |
(l) | Reflects the reversal of previously recorded derivatives fair value adjustments and the recognition of unrealized gains (losses) on AFS securities and buy-ups. |
Restatement Adjustments for: | ||||||||||||||||||||||||||||||||||||||||
MBS Trust | Financial | |||||||||||||||||||||||||||||||||||||||
As | Consolidation | Guaranties | Amortization | Total | ||||||||||||||||||||||||||||||||||||
Previously | Debt and | Investments | and Sale | and Master | of Cost Basis | Other | Restatement | As | ||||||||||||||||||||||||||||||||
Reported(a) | Derivatives | Commitments | in Securities | Accounting | Servicing | Adjustments | Adjustments | Adjustments | Restated | |||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||
Investments in securities | $ | 650,616 | $ | — | $ | 230 | $ | 33,278 | $ | (128,809 | ) | $ | — | $ | 558 | $ | (20,788 | ) | $ | (115,531 | )(b) | $ | 535,085 | |||||||||||||||||
Mortgage loans | 206,905 | — | 683 | (20,576 | ) | 136,097 | — | (291 | ) | 1,552 | 117,465 | (c) | 324,370 | |||||||||||||||||||||||||||
Derivative assets at fair value | 3,666 | (297 | ) | 1,554 | — | — | — | — | — | 1,257 | (d) | 4,923 | ||||||||||||||||||||||||||||
Deferred tax assets | 8,053 | (2,885 | ) | (2,035 | ) | (2,969 | ) | (309 | ) | (23 | ) | (111 | ) | 279 | (8,053 | )(e) | — | |||||||||||||||||||||||
Other assets | 18,275 | (501 | ) | 3,737 | (4,539 | ) | 674 | (864 | ) | 108 | 23,471 | 22,086 | (f) | 40,361 | ||||||||||||||||||||||||||
Total assets | $ | 887,515 | $ | (3,683 | ) | $ | 4,169 | $ | 5,194 | $ | 7,653 | $ | (887 | ) | $ | 264 | $ | 4,514 | $ | 17,224 | $ | 904,739 | ||||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Debt | $ | 841,899 | $ | (8,237 | ) | $ | — | $ | — | $ | 7,516 | $ | — | $ | — | $ | 115 | $ | (606 | )(g) | $ | 841,293 | ||||||||||||||||||
Derivative liabilities at fair value | 5,697 | 1,036 | 169 | — | — | — | — | — | 1,205 | (d) | 6,902 | |||||||||||||||||||||||||||||
Other liabilities | 23,631 | (1,840 | ) | 220 | (324 | ) | (438 | ) | (890 | ) | 58 | 4,228 | 1,014 | (h) | 24,645 | |||||||||||||||||||||||||
Total liabilities | 871,227 | (9,041 | ) | 389 | (324 | ) | 7,078 | (890 | ) | 58 | 4,343 | 1,613 | 872,840 | |||||||||||||||||||||||||||
Stockholders’ Equity: | ||||||||||||||||||||||||||||||||||||||||
Retained earnings | 29,385 | (10,909 | ) | 3,771 | (891 | ) | 39 | (18 | ) | 188 | 73 | (7,747 | )(i) | 21,638 | ||||||||||||||||||||||||||
Accumulated other comprehensive (loss) income | (11,792 | ) | 16,267 | 9 | 6,409 | 536 | 21 | 18 | — | 23,260 | (j) | 11,468 | ||||||||||||||||||||||||||||
Other stockholders’ equity | (1,305 | ) | — | — | — | — | — | — | 98 | 98 | (1,207 | ) | ||||||||||||||||||||||||||||
Total stockholders’ equity | 16,288 | 5,358 | 3,780 | 5,518 | 575 | 3 | 206 | 171 | 15,611 | 31,899 | ||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 887,515 | $ | (3,683 | ) | $ | 4,169 | $ | 5,194 | $ | 7,653 | $ | (887 | ) | $ | 264 | $ | 4,514 | $ | 17,224 | $ | 904,739 | ||||||||||||||||||
(a) | Certain previously reported balances have been reclassified to conform to the current condensed consolidated balance sheet presentation, as described in “Note 2, Summary of Significant Accounting Policies.” | |
(b) | Reflects the impact of MBS trust consolidation and sale accounting; the derecognition of HTM securities at amortized cost and recognition of AFS and trading securities at fair value, including commitments accounted for underEITF 96-11; the recognition of revised securities commitment basis adjustments; the recognition of revised amortization on securities cost basis adjustments; and the derecognition of securities related to failed dollar roll repurchase transactions that did not meet the criteria for secured borrowing accounting. |
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(c) | Reflects the impact of MBS trust consolidation and sale accounting; the reclassification of “Mortgage loans” to “Advances to lenders;” the recognition of mortgage loan commitment basis adjustments; the recognition of the LOCOM adjustment for loans classified as HFS; and the recognition of revised amortization on mortgage loan cost basis adjustments. | |
(d) | Reflects the reclassification of interest rate swap accruals from accrued interest and recognition of derivative fair value adjustments. | |
(e) | Reflects the impact of restatement adjustments on deferred taxes and the correction of tax credit-related errors associated with partnership investments. | |
(f) | Reflects the reclassification of interest rate swap accruals to “Derivative assets at fair value;” the reclassification of “Advances to lenders” from “Mortgage loans;” the impairment of buy-ups; the recognition of “Restricted cash” and “Cash and cash equivalents” related to collateral received from derivatives counterparties; and the impact of cost basis transfers between error categories. | |
(g) | Reflects the reversal of previously recorded unrealized gains and losses on hedged items associated with fair value hedges; the recognition of revised amortization of debt basis adjustments; and the recognition of short-term and long-term debt upon consolidation of MBS trusts in which we own less than 100% of the related securities. | |
(h) | Reflects the reclassification of interest rate swap accruals to “Derivative liabilities at fair value;” the reversal of short-term debt associated with failed dollar roll repurchase transactions; the correction of amortization of buy-downs and risk-based pricing adjustments; and the recognition of liabilities to derivative counterparties associated with restricted cash. | |
(i) | Reflects the recognition of derivative fair value adjustments to the consolidated statements of income and other income or expense related adjustments. | |
(j) | Reflects the reversal of previously recorded derivatives fair value adjustments and the recognition of unrealized gains (losses) on AFS securities and buy-ups. |
As | Total | |||||||||||
Previously | Restatement | As | ||||||||||
Reported(a) | Adjustments | Restated | ||||||||||
(Dollars in millions) | ||||||||||||
Assets: | ||||||||||||
Investments in securities | $ | 602,429 | $ | (99,093 | )(b) | $ | 503,336 | |||||
Mortgage loans | 172,127 | 106,710 | (c) | 278,837 | ||||||||
Derivative assets at fair value | 954 | (130 | )(d) | 824 | ||||||||
Deferred tax assets | 3,821 | (2,634 | )(e) | 1,187 | ||||||||
Other assets | 20,617 | 9,760 | (f) | 30,377 | ||||||||
Total assets | $ | 799,948 | $ | 14,613 | $ | 814,561 | ||||||
Liabilities and Stockholders’ Equity | ||||||||||||
Liabilities: | ||||||||||||
Debt | $ | 757,510 | $ | 7,520 | (g) | $ | 765,030 | |||||
Derivative liabilities at fair value | 5,069 | 2,508 | (d) | 7,577 | ||||||||
Other liabilities | 19,251 | (553 | )(h) | 18,698 | ||||||||
Total liabilities | 781,830 | 9,475 | 791,305 | |||||||||
Stockholders’ Equity: | ||||||||||||
Retained earnings | 26,175 | (7,041 | )(i) | 19,134 | ||||||||
Accumulated other comprehensive (loss) income | (7,065 | ) | 12,087 | (j) | 5,022 | |||||||
Other stockholders’ equity | (992 | ) | 92 | (900 | ) | |||||||
Total stockholders’ equity | 18,118 | 5,138 | 23,256 | |||||||||
Total liabilities and stockholders’ equity | $ | 799,948 | $ | 14,613 | $ | 814,561 | ||||||
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(a) | Certain previously reported balances have been reclassified to conform to the current condensed consolidated balance sheet presentation, as described in “Note 2, Summary of Significant Accounting Policies.” | |
(b) | Reflects the impact of MBS trust consolidation and sale accounting; the derecognition of HTM securities at amortized cost and recognition of AFS and trading securities at fair value, including commitments accounted for underEITF 96-11; the recognition of revised securities commitment basis adjustments; the recognition of revised amortization on securities cost basis adjustments; and the derecognition of securities related to failed dollar roll repurchase transactions that did not meet the criteria for secured borrowing accounting. | |
(c) | Reflects impact of MBS trust consolidation and sale accounting; the reclassification of “Mortgage loans” to “Advances to lenders;” the recognition of mortgage loan commitment basis adjustments; the recognition of the LOCOM adjustment for loans classified as HFS; and the recognition of revised amortization on mortgage loan cost basis adjustments. | |
(d) | Reflects the reclassification of interest rate swap accruals from accrued interest and recognition of derivative fair value adjustments. | |
(e) | Reflects the impact of restatement adjustments on deferred taxes and the correction of tax-credit related errors associated with partnership investments. | |
(f) | Reflects the reclassification of interest rate swap accruals to “Derivative assets at fair value;” the reclassification of “Advances to lenders” from “Mortgage loans;” the impairment of buy-ups; the recognition of “Restricted cash” and “Cash and cash equivalents” related to collateral received from derivatives counterparties; and the impact of cost basis transfers between error categories. | |
(g) | Reflects the reversal of previously recorded unrealized gains and losses on hedged items associated with fair value hedges; the recognition of revised amortization of debt basis adjustments; and the recognition of short-term and long-term debt upon consolidation of MBS trusts in which we own less than 100% of the related securities. | |
(h) | Reflects the reclassification of interest rate swap accruals to “Derivative liabilities at fair value;” the reversal of short-term debt associated with failed dollar roll repurchase transactions; the correction of amortization of buy-downs and risk-based pricing adjustments; and the recognition of liabilities to derivative counterparties associated with restricted cash. | |
(i) | Reflects the recognition of derivative fair value adjustments to the consolidated statements of income and other income or expense related adjustments. | |
(j) | Reflects the reversal of previously recorded derivatives fair value adjustments and the recognition of unrealized gains (losses) on AFS securities and buy-ups. |
Accumulated | ||||||||||||||||
Other | Other | Total | ||||||||||||||
Retained | Comprehensive | Stockholders’ | Stockholders’ | |||||||||||||
Earnings | (Loss) Income | Equity | Equity | |||||||||||||
(Dollars in millions) | ||||||||||||||||
December 31, 2001 balance, as previously reported | $ | 26,175 | $ | (7,065 | ) | $ | (992 | ) | $ | 18,118 | ||||||
Restatement adjustments for: | ||||||||||||||||
Debt and derivatives | (10,622 | )(a) | 11,363 | (b) | — | 741 | ||||||||||
Commitments | 413 | 1 | — | 414 | ||||||||||||
Investments in securities | (660 | ) | 6,880 | (c) | — | 6,220 | ||||||||||
MBS trust consolidation and sale accounting | 119 | 81 | — | 200 | ||||||||||||
Financial guaranties and master servicing | (206 | ) | 268 | — | 62 | |||||||||||
Amortization of cost basis adjustments | 154 | — | — | 154 | ||||||||||||
Other adjustments | 296 | — | 92 | 388 | ||||||||||||
Pre-tax total impact of restatement adjustments | (10,506 | ) | 18,593 | 92 | 8,179 | |||||||||||
Tax impact (benefit) of restatement adjustments | (3,465 | ) | 6,506 | — | 3,041 | |||||||||||
Total impact of restatement adjustments | (7,041 | ) | 12,087 | 92 | 5,138 | |||||||||||
December 31, 2001 balance, as restated | $ | 19,134 | $ | 5,022 | $ | (900 | ) | $ | 23,256 | |||||||
(a) | Reflects the recognition of derivative fair value gains (losses) and revised amortization of debt cost basis adjustments. |
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(b) | Reflects the reversal of previously recorded derivative fair value losses. | |
(c) | Reflects the recognition of net unrealized gains on AFS securities. |
Restatement Adjustments for: | ||||||||||||||||||||||||||||||||||||||||
MBS Trust | Financial | |||||||||||||||||||||||||||||||||||||||
As | Consolidation | Guaranties | Amortization | Total | ||||||||||||||||||||||||||||||||||||
Previously | Debt and | Investments | and Sale | and Master | of Cost Basis | Other | Restatement | As | ||||||||||||||||||||||||||||||||
Reported(a) | Derivatives | Commitments | in Securities | Accounting | Servicing | Adjustments | Adjustments | Adjustments | Restated | |||||||||||||||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 13,569 | $ | 8,098 | $ | — | $ | (162 | ) | $ | 251 | $ | (948 | ) | $ | (1,355 | ) | $ | 24 | $ | 5,908 | $ | 19,477 | |||||||||||||||||
Guaranty fee income | 2,411 | — | — | (1 | ) | (247 | ) | 1,126 | — | (8 | ) | 870 | 3,281 | |||||||||||||||||||||||||||
Investment losses, net | (123 | ) | (53 | ) | (280 | ) | (241 | ) | (230 | ) | — | (1 | ) | (303 | ) | (1,108 | ) | (1,231 | ) | |||||||||||||||||||||
Derivatives fair value losses, net | (2,180 | ) | (2,567 | ) | (1,543 | ) | — | — | — | — | 1 | (4,109 | ) | (6,289 | ) | |||||||||||||||||||||||||
Debt extinguishment losses, net | (2,261 | ) | (430 | ) | — | — | — | — | — | (1 | ) | (431 | ) | (2,692 | ) | |||||||||||||||||||||||||
Loss from partnership investments | (336 | ) | — | — | — | — | — | — | (301 | ) | (301 | ) | (637 | ) | ||||||||||||||||||||||||||
Fee and other income | 1,076 | (692 | ) | (3 | ) | 72 | — | 14 | — | (127 | ) | (736 | ) | 340 | ||||||||||||||||||||||||||
Expenses | 1,743 | — | — | — | — | 17 | (8 | ) | 211 | 220 | 1,963 | |||||||||||||||||||||||||||||
Income before federal income taxes, extraordinary gains (losses), and cumulative effect of change in accounting principle | 10,413 | 4,356 | (1,826 | ) | (332 | ) | (226 | ) | 175 | (1,348 | ) | (926 | ) | (127 | ) | 10,286 | ||||||||||||||||||||||||
Provision (benefit) for federal income taxes | 2,693 | 1,525 | (639 | ) | (116 | ) | (77 | ) | 56 | (472 | ) | (536 | ) | (259 | ) | 2,434 | ||||||||||||||||||||||||
Income before extraordinary gains (losses) and cumulative effect of change in accounting principle | 7,720 | 2,831 | (1,187 | ) | (216 | ) | (149 | ) | 119 | (876 | ) | (390 | ) | 132 | 7,852 | |||||||||||||||||||||||||
Extraordinary gains (losses), net of tax effect | — | — | — | — | 195 | — | — | — | 195 | 195 | ||||||||||||||||||||||||||||||
Cumulative effect of change in accounting principle, net of tax effect | 185 | — | (185 | ) | — | 34 | — | — | — | (151 | ) | 34 | ||||||||||||||||||||||||||||
Net income | 7,905 | 2,831 | (1,372 | ) | (216 | ) | 80 | 119 | (876 | ) | (390 | ) | 176 | 8,081 | ||||||||||||||||||||||||||
Preferred stock dividends and issuance costs at redemption | (150 | ) | — | — | — | — | — | — | — | — | (150 | ) | ||||||||||||||||||||||||||||
Net income available to common stockholders | $ | 7,755 | $ | 2,831 | $ | (1,372 | ) | $ | (216 | ) | $ | 80 | $ | 119 | $ | (876 | ) | $ | (390 | ) | $ | 176 | $ | 7,931 | ||||||||||||||||
Basic earnings per share | $ | 7.93 | $ | 2.90 | $ | (1.40 | ) | $ | (0.22 | ) | $ | 0.08 | $ | 0.13 | $ | (0.90 | ) | $ | (0.40 | ) | $ | 0.19 | $ | 8.12 | ||||||||||||||||
Diluted earnings per share | $ | 7.91 | $ | 2.89 | $ | (1.40 | ) | $ | (0.22 | ) | $ | 0.08 | $ | 0.12 | $ | (0.89 | ) | $ | (0.41 | ) | $ | 0.17 | $ | 8.08 | ||||||||||||||||
(a) | Certain amounts have been reclassified to conform to the current condensed income statements presentation, as described in “Note 2, Summary of Significant Accounting Policies.” |
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Restatement Adjustments for: | ||||||||||||||||||||||||||||||||||||||||
MBS Trust | Financial | |||||||||||||||||||||||||||||||||||||||
As | Consolidation | Guaranties | Amortization | Total | ||||||||||||||||||||||||||||||||||||
Previously | Debt and | Investments | and Sale | and Master | of Cost Basis | Other | Restatement | As | ||||||||||||||||||||||||||||||||
Reported(a) | Derivatives | Commitments | in Securities | Accounting | Servicing | Adjustments | Adjustments | Adjustments | Restated | |||||||||||||||||||||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 10,566 | $ | 8,317 | $ | — | $ | (81 | ) | $ | 165 | $ | (768 | ) | $ | 144 | $ | 83 | $ | 7,860 | $ | 18,426 | ||||||||||||||||||
Guaranty fee income | 1,816 | — | — | (1 | ) | (198 | ) | 908 | — | (9 | ) | 700 | 2,516 | |||||||||||||||||||||||||||
Investment gains (losses), net | 24 | (13 | ) | 189 | (638 | ) | (26 | ) | — | 2 | (39 | ) | (525 | ) | (501 | ) | ||||||||||||||||||||||||
Derivatives fair value losses, net | (4,545 | ) | (13,572 | ) | 5,198 | — | — | — | — | — | (8,374 | ) | (12,919 | ) | ||||||||||||||||||||||||||
Debt extinguishment losses, net | (710 | ) | (104 | ) | — | — | — | — | — | — | (104 | ) | (814 | ) | ||||||||||||||||||||||||||
Loss from partnership investments | (306 | ) | — | — | — | — | — | — | (203 | ) | (203 | ) | (509 | ) | ||||||||||||||||||||||||||
Fee and other income | 637 | (505 | ) | — | 5 | — | 38 | (19 | ) | (67 | ) | (548 | ) | 89 | ||||||||||||||||||||||||||
Expenses | 1,434 | — | — | — | — | — | (8 | ) | 108 | 100 | 1,534 | |||||||||||||||||||||||||||||
Income before federal income taxes | 6,048 | (5,877 | ) | 5,387 | (715 | ) | (59 | ) | 178 | 135 | (343 | ) | (1,294 | ) | 4,754 | |||||||||||||||||||||||||
Provision (benefit) for federal income taxes | 1,429 | (2,057 | ) | 1,886 | (251 | ) | (21 | ) | 63 | 47 | (256 | ) | (589 | ) | 840 | |||||||||||||||||||||||||
Net income | 4,619 | (3,820 | ) | 3,501 | (464 | ) | (38 | ) | 115 | 88 | (87 | ) | (705 | ) | 3,914 | |||||||||||||||||||||||||
Preferred stock dividends and issuance costs at redemption | (111 | ) | — | — | — | — | — | — | — | — | (111 | ) | ||||||||||||||||||||||||||||
Net income available to common stockholders | $ | 4,508 | $ | (3,820 | ) | $ | 3,501 | $ | (464 | ) | $ | (38 | ) | $ | 115 | $ | 88 | $ | (87 | ) | $ | (705 | ) | $ | 3,803 | |||||||||||||||
Basic earnings per share | $ | 4.54 | $ | (3.85 | ) | $ | 3.53 | $ | (0.47 | ) | $ | (0.04 | ) | $ | 0.12 | $ | 0.09 | $ | (0.09 | ) | $ | (0.71 | ) | $ | 3.83 | |||||||||||||||
Diluted earnings per share | $ | 4.52 | $ | (3.83 | ) | $ | 3.51 | $ | (0.47 | ) | $ | (0.04 | ) | $ | 0.12 | $ | 0.09 | $ | (0.09 | ) | $ | (0.71 | ) | $ | 3.81 | |||||||||||||||
(a) | Certain amounts have been reclassified to conform to the current condensed income statements presentation, as described below in “Note 2, Summary of Significant Accounting Policies.” |
For the Year Ended December 31, 2003 | For the Year Ended December 31, 2002 | |||||||||||||||||||||||
As | Total | As | Total | |||||||||||||||||||||
Previously | Restatement | As | Previously | Restatement | As | |||||||||||||||||||
Reported | Adjustments | Restated | Reported | Adjustments | Restated | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Net cash provided by operating activities | $ | 19,519 | $ | 38,704 | $ | 58,223 | $ | 12,848 | $ | 30,783 | $ | 43,631 | ||||||||||||
Net cash used in investing activities | (115,801 | ) | (36,946 | ) | (152,747 | ) | (71,426 | ) | (42,162 | ) | (113,588 | ) | ||||||||||||
Net cash provided by financing activities | 95,987 | 206 | 96,193 | 58,770 | 11,868 | 70,638 | ||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | $ | (295 | ) | $ | 1,964 | $ | 1,669 | $ | 192 | $ | 489 | $ | 681 | |||||||||||
Cash and cash equivalents at beginning of the period | 1,710 | 16 | 1,726 | 1,518 | (473 | ) | 1,045 | |||||||||||||||||
Cash and cash equivalents at end of the period | $ | 1,415 | $ | 1,980 | $ | 3,395 | $ | 1,710 | $ | 16 | $ | 1,726 | ||||||||||||
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As of December 31, | ||||||||
2003 | 2002 | |||||||
(Dollars in millions) | ||||||||
Core capital, as previously reported | $ | 34,405 | $ | 28,079 | ||||
Total restatement adjustments | (7,452 | ) | (7,648 | ) | ||||
Core capital, as restated | $ | 26,953 | $ | 20,431 | ||||
Required minimum capital, as previously reported | $ | 31,520 | $ | 27,203 | ||||
Total restatement adjustments | 296 | 485 | ||||||
Required minimum capital, as restated | $ | 31,816 | $ | 27,688 | ||||
Surplus of required minimum capital, as previously reported | $ | 2,885 | $ | 877 | ||||
Total restatement adjustments | (7,748 | ) | (8,134 | ) | ||||
Surplus (deficit) of required minimum capital, as restated | $ | (4,863 | ) | $ | (7,257 | ) | ||
Required critical capital, as previously reported | $ | 16,113 | $ | 13,880 | ||||
Total restatement adjustments | 148 | 246 | ||||||
Required critical capital, as restated | $ | 16,261 | $ | 14,126 | ||||
Surplus of required critical capital, as previously reported | $ | 18,292 | $ | 14,199 | ||||
Total restatement adjustments | (7,601 | ) | (7,894 | ) | ||||
Surplus of required critical capital, as restated | $ | 10,691 | $ | 6,305 | ||||
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2. | Summary of Significant Accounting Policies |
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January 1, 2001 | July 1, 2003 | |||||
to | to | |||||
Commitment Type | Prior to 2001 | June 30, 2003 | December 31, 2004 | |||
Mortgage Loans | N/A | SFAS 133 | SFAS 133 | |||
Securities | EITF 96-11 | SFAS 133 | SFAS 133 | |||
EITF 96-11 | SFAS 149 EITF 96-11 |
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For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
(Dollars in millions, except per share amounts) | ||||||||||||
Net income available to common stockholders, as reported | $ | 4,802 | $ | 7,931 | $ | 3,803 | ||||||
Plus: Stock-based employee compensation expense included in reported net income, net of related tax effects | 68 | 74 | 27 | |||||||||
Less: Stock-based employee compensation expense determined under fair value based method, net of related tax effects | (97 | ) | (123 | ) | (114 | ) | ||||||
Pro forma net income available to common stockholders | $ | 4,773 | $ | 7,882 | $ | 3,716 | ||||||
Earnings per share: | ||||||||||||
Basic—as reported | $ | 4.95 | $ | 8.12 | $ | 3.83 | ||||||
Basic—pro forma | 4.92 | 8.07 | 3.75 | |||||||||
Diluted—as reported | $ | 4.94 | $ | 8.08 | $ | 3.81 | ||||||
Diluted—pro forma | 4.91 | 8.03 | 3.72 |
2004 | 2003 | 2002 | ||||||||||
Risk-free rate | 2.52 | % | 2.63 | % | 3.06 | % | ||||||
Volatility | 28.19 | % | 29.37 | % | 27.00 | % | ||||||
Dividend | $ | 2.08 | $ | 1.56 | $ | 1.32 | ||||||
Average expected life | 4 yrs | 4 yrs | 3 yrs |
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3. | Consolidations |
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As of December 31, | ||||||||
2004 | 2003 | |||||||
(Restated) | ||||||||
(Dollars in millions) | ||||||||
Loans | $ | 143,800 | $ | 151,731 | ||||
Securities(1) | 4,139 | 1,693 | ||||||
Other assets | 3,795 | 223 | ||||||
Total assets of consolidated VIEs | $ | 151,734 | $ | 153,647 | ||||
(1) | Includes consolidated MBS trusts and consolidated mortgage revenue bond trusts. |
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4. | Mortgage Loans |
As of December 31, | ||||||||
2004 | 2003 | |||||||
(Restated) | ||||||||
(Dollars in millions) | ||||||||
Single-family:(1) | ||||||||
Government insured or guaranteed | $ | 10,112 | $ | 7,284 | ||||
Conventional: | ||||||||
Long-term fixed-rate | 230,585 | 250,915 | ||||||
Intermediate-term fixed-rate(2) | 76,640 | 85,130 | ||||||
Adjustable-rate | 38,350 | 19,155 | ||||||
Total conventional single-family | 345,575 | 355,200 | ||||||
Total single-family | 355,687 | 362,484 | ||||||
Multifamily:(1) | ||||||||
Government insured or guaranteed | 1,074 | 1,204 | ||||||
Conventional | 43,396 | 33,945 | ||||||
Total multifamily | 44,470 | 35,149 | ||||||
Unamortized premiums (discounts) and deferred price adjustments, net | 1,647 | 1,768 | ||||||
Lower of cost or market adjustments on loans held for sale | (83 | ) | (50 | ) | ||||
Allowance for loan losses for loans held for investment | (349 | ) | (290 | ) | ||||
Total loans | $ | 401,372 | $ | 399,061 | ||||
(1) | Loan data is shown at the unpaid principal balance and includes $152.7 billion and $162.5 billion of mortgage-related securities that were consolidated as loans as of December 31, 2004 and 2003, respectively. | |
(2) | Intermediate-term fixed-rate consists of mortgage loans with contractual maturities at purchase equal to or less than 15 years. |
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As of December 31, | ||||||||
2004 | 2003 | |||||||
(Restated) | ||||||||
(Dollars in millions) | ||||||||
Impaired loans with an allowance | $ | 826 | $ | 720 | ||||
Impaired loans without an allowance(1) | 225 | 317 | ||||||
Total impaired loans(2) | $ | 1,051 | $ | 1,037 | ||||
Allowance for impaired loans(3) | $ | 63 | $ | 68 |
(1) | The discounted cash flows, collateral value or market price equals or exceeds the carrying value of the loan, and as such, no allowance is required. | |
(2) | Amount includes single-family and multifamily loans restructured in a TDR of $833 million and $697 million and multifamily loans individually impaired of $218 million and $340 million as of December 31, 2004 and 2003, respectively. | |
(3) | Amount is included in the “Allowance for loan losses.” |
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5. | Allowance for Loan Losses and Reserve for Guaranty Losses |
For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
(Dollars in millions) | ||||||||||||
Allowance for loan losses: | ||||||||||||
Beginning balance | $ | 290 | $ | 216 | $ | 168 | ||||||
Provision | 174 | 187 | 128 | |||||||||
Charge-offs(1) | (321 | ) | (270 | ) | (175 | ) | ||||||
Recoveries | 131 | 72 | 27 | |||||||||
Increase from the reserve for guaranty losses(2) | 75 | 85 | 68 | |||||||||
Ending balance | $ | 349 | $ | 290 | $ | 216 | ||||||
Reserve for guaranty losses: | ||||||||||||
Beginning balance | $ | 313 | $ | 223 | $ | 138 | ||||||
Provision | 178 | 178 | 156 | |||||||||
Charge-offs | (24 | ) | (7 | ) | (11 | ) | ||||||
Recoveries | 4 | 4 | 8 | |||||||||
Decrease to the allowance for loan losses(2) | (75 | ) | (85 | ) | (68 | ) | ||||||
Ending balance | $ | 396 | $ | 313 | $ | 223 | ||||||
(1) | Includes accrued interest of $29 million, $29 million and $24 million for the years ended December 31, 2004, 2003 and 2002, respectively. | |
(2) | Includes reduction in reserve for guaranty losses and increase in allowance for loan losses due to the purchase of delinquent loans from MBS pools. |
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6. | Investments in Securities |
As of December 31, | ||||||||
2004 | 2003 | |||||||
(Restated) | ||||||||
(Dollars in millions) | ||||||||
Mortgage-related securities: | ||||||||
Fannie Mae single-class MBS(1) | $ | 276,178 | $ | 343,174 | ||||
Non-Fannie Mae single-class mortgage-related securities(1) | 36,105 | 34,066 | ||||||
Fannie Mae structured MBS | 73,367 | 70,459 | ||||||
Non-Fannie Mae structured mortgage-related securities | 109,820 | 45,570 | ||||||
Mortgage revenue bonds | 22,657 | 20,798 | ||||||
Other mortgage-related securities(2) | 5,346 | 6,171 | ||||||
Total mortgage-related securities | $ | 523,473 | $ | 520,238 | ||||
Non-mortgage-related securities: | ||||||||
Asset-backed securities | $ | 25,645 | $ | 26,862 | ||||
Corporate debt securities | 15,098 | 16,432 | ||||||
Municipal bonds | 863 | 1,203 | ||||||
Other non-mortgage-related securities | 2,303 | 2,335 | ||||||
Total non-mortgage-related securities | 43,909 | 46,832 | ||||||
Total securities | $ | 567,382 | $ | 567,070 | ||||
(1) | Includes $1.3 billion and $268 million of Fannie Mae structured MBS and non-Fannie Mae structured mortgage-related securities and $180 million and $136 million of mortgage revenue bonds that were consolidated to Fannie Mae single-class MBS and non-Fannie Mae single-class mortgage-related securities as of December 31, 2004 and 2003, respectively. | |
(2) | Includes commitments related to mortgage-related securities that are accounted for as securities. |
For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
(Dollars in millions) | ||||||||||||
Gross realized gains | $ | 332 | $ | 781 | $ | 150 | ||||||
Gross realized losses | 157 | 896 | 197 | |||||||||
Total proceeds | 6,256 | 122,262 | 37,032 |
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As of December 31, 2004 | ||||||||||||||||||||||||||||||||
Less Than 12 | 12 Consecutive | |||||||||||||||||||||||||||||||
Consecutive Months | Months or Longer | |||||||||||||||||||||||||||||||
Total | Gross | Gross | Total | Gross | Gross | |||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | |||||||||||||||||||||||||
Cost(1) | Gains | Losses | Value | Losses | Value | Losses | Value | |||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||
Fannie Mae single-class MBS | $ | 238,386 | $ | 4,119 | $ | (677 | ) | $ | 241,828 | $ | (346 | ) | $ | 51,263 | $ | (331 | ) | $ | 18,556 | |||||||||||||
Non-Fannie Mae single-class mortgage-related securities | 34,429 | 808 | (69 | ) | 35,168 | (28 | ) | 5,638 | (41 | ) | 2,182 | |||||||||||||||||||||
Fannie Mae structured MBS | 72,093 | 1,535 | (261 | ) | 73,367 | (157 | ) | 15,828 | (104 | ) | 5,936 | |||||||||||||||||||||
Non-Fannie Mae structured mortgage-related securities | 109,564 | 444 | (188 | ) | 109,820 | (154 | ) | 25,387 | (34 | ) | 2,860 | |||||||||||||||||||||
Mortgage revenue bonds | 22,124 | 677 | (144 | ) | 22,657 | (69 | ) | 3,270 | (75 | ) | 2,127 | |||||||||||||||||||||
Other mortgage-related securities(2) | 5,043 | 313 | (10 | ) | 5,346 | (5 | ) | 156 | (5 | ) | 366 | |||||||||||||||||||||
Asset-backed securities | 25,632 | 50 | (37 | ) | 25,645 | (30 | ) | 8,376 | (7 | ) | 1,662 | |||||||||||||||||||||
Corporate debt securities | 15,102 | 11 | (15 | ) | 15,098 | (10 | ) | 4,227 | (5 | ) | 422 | |||||||||||||||||||||
Municipal bonds | 865 | — | (2 | ) | 863 | (2 | ) | 854 | — | — | ||||||||||||||||||||||
Other non-mortgage-related securities | 2,302 | 1 | — | 2,303 | — | — | — | — | ||||||||||||||||||||||||
Total | $ | 525,540 | $ | 7,958 | $ | (1,403 | ) | $ | 532,095 | $ | (801 | ) | $ | 114,999 | $ | (602 | ) | $ | 34,111 | |||||||||||||
As of December 31, 2003 | ||||||||||||||||||||||||||||||||
Less Than 12 | 12 Consecutive | |||||||||||||||||||||||||||||||
Consecutive Months | Months or Longer | |||||||||||||||||||||||||||||||
Total | Gross | Gross | Total | Gross | Gross | |||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | |||||||||||||||||||||||||
Cost(1) | Gains | Losses | Value | Losses | Value | Losses | Value | |||||||||||||||||||||||||
(Restated) | ||||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||
Fannie Mae single-class MBS | $ | 295,970 | $ | 5,313 | $ | (837 | ) | $ | 300,446 | $ | (837 | ) | $ | 76,953 | $ | — | $ | — | ||||||||||||||
Non-Fannie Mae single-class mortgage-related securities | 32,030 | 1,025 | (59 | ) | 32,996 | (59 | ) | 4,399 | — | — | ||||||||||||||||||||||
Fannie Mae structured MBS | 68,903 | 1,930 | (374 | ) | 70,459 | (372 | ) | 22,522 | (2 | ) | 590 | |||||||||||||||||||||
Non-Fannie Mae structured mortgage-related securities | 45,130 | 487 | (47 | ) | 45,570 | (46 | ) | 12,288 | (1 | ) | 1,070 | |||||||||||||||||||||
Mortgage revenue bonds | 20,414 | 499 | (115 | ) | 20,798 | (83 | ) | 2,741 | (32 | ) | 1,068 | |||||||||||||||||||||
Other mortgage-related securities(2) | 6,128 | 89 | (46 | ) | 6,171 | (41 | ) | 1,225 | (5 | ) | 355 | |||||||||||||||||||||
Asset-backed securities | 26,803 | 72 | (13 | ) | 26,862 | (9 | ) | 4,959 | (4 | ) | 1,899 | |||||||||||||||||||||
Corporate debt securities | 16,386 | 50 | (4 | ) | 16,432 | (4 | ) | 1,221 | — | — | ||||||||||||||||||||||
Municipal bonds | 1,203 | — | — | 1,203 | — | — | — | — | ||||||||||||||||||||||||
Other non-mortgage-related securities | 2,335 | — | — | 2,335 | — | — | — | — | ||||||||||||||||||||||||
Total | $ | 515,302 | $ | 9,465 | $ | (1,495 | ) | $ | 523,272 | $ | (1,451 | ) | $ | 126,308 | $ | (44 | ) | $ | 4,982 | |||||||||||||
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(1) | Amortized cost includes unamortized premiums, discounts and other deferred price adjustments, as well asother-than-temporary impairment write-downs. | |
(2) | Includes commitments related to mortgage securities that are accounted for as securities. |
As of December 31, 2004 | ||||||||||||||||||||||||||||||||||||||||
After One Year | After Five Years | |||||||||||||||||||||||||||||||||||||||
Total | Total | One Year or Less | through Five Years | through Ten Years | After Ten Years | |||||||||||||||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||||||||||||||
Cost(1) | Value | Cost(1) | Value | Cost(1) | Value | Cost(1) | Value | Cost(1) | Value | |||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||||||
Fannie Mae single-class MBS(2) | $ | 238,386 | $ | 241,828 | $ | — | $ | — | $ | 701 | $ | 746 | $ | 3,163 | $ | 3,338 | $ | 234,522 | $ | 237,744 | ||||||||||||||||||||
Non-Fannie Mae single-class mortgage-related securities(2) | 34,429 | 35,168 | — | — | 58 | 61 | 420 | 435 | 33,951 | 34,672 | ||||||||||||||||||||||||||||||
Fannie Mae structured MBS(2) | 72,093 | 73,367 | 188 | 239 | 78 | 79 | 426 | 444 | 71,401 | 72,605 | ||||||||||||||||||||||||||||||
Non-Fannie Mae structured mortgage-related securities(2) | 109,564 | 109,820 | 4 | 4 | 10 | 10 | 56 | 57 | 109,494 | 109,749 | ||||||||||||||||||||||||||||||
Mortgage revenue bonds | 22,124 | 22,657 | 180 | 179 | 687 | 686 | 658 | 674 | 20,599 | 21,118 | ||||||||||||||||||||||||||||||
Other mortgage-related securities(3) | 5,043 | 5,346 | — | (3 | ) | — | — | — | — | 5,043 | 5,349 | |||||||||||||||||||||||||||||
Asset-backed securities(2) | 25,632 | 25,645 | 5,094 | 5,094 | 17,532 | 17,521 | 1,552 | 1,554 | 1,454 | 1,476 | ||||||||||||||||||||||||||||||
Corporate debt securities | 15,102 | 15,098 | 5,302 | 5,305 | 9,700 | 9,693 | 100 | 100 | — | — | ||||||||||||||||||||||||||||||
Municipal bonds | 865 | 863 | 865 | 863 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Other non-mortgage-related securities | 2,302 | 2,303 | 1,782 | 1,783 | 520 | 520 | — | — | — | — | ||||||||||||||||||||||||||||||
Total | $ | 525,540 | $ | 532,095 | $ | 13,415 | $ | 13,464 | $ | 29,286 | $ | 29,316 | $ | 6,375 | $ | 6,602 | $ | 476,464 | $ | 482,713 | ||||||||||||||||||||
(1) | Amortized cost includes unamortized premiums, discounts and other deferred price adjustments, as well asother-than-temporary impairment write-downs. | |
(2) | Asset-backed securities, including mortgage-backed securities, are reported based on contractual maturities assuming no prepayments. | |
(3) | Includes commitments related to mortgage securities that are accounted for as securities. |
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7. | Portfolio Securitizations |
Single-class | REMICs & | Guaranty | ||||||||||
MBS & Megas | SMBS | Assets | ||||||||||
For the year ended December 31, 2004 | ||||||||||||
Weighted-average life(1) | 9.0 years | 7.4 years | 8.6 years | |||||||||
Average 12-month CPR(2) | 6.22 | % | 5.36 | % | 7.8 | % | ||||||
Average discount rate assumption | 5.25 | 4.93 | 8.9 | |||||||||
For the year ended December 31, 2003 (Restated) | ||||||||||||
Weighted-average life(1) | 8.3 years | 6.6 years | 7.6 years | |||||||||
Average 12-month CPR(2) | 6.96 | % | 3.44 | % | 13.0 | % | ||||||
Average discount rate assumption | 5.01 | 4.85 | 10.3 |
(1) | The average number of years for which each dollar of unpaid principal on a loan or mortgage-related security remains outstanding. | |
(2) | Represents the expected lifetime average payment rate, which is based on the constant annualized prepayment rate for mortgage-related loans. |
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Single-class | REMICs & | |||||||||||
MBS & Megas | SMBS | Guaranty Assets | ||||||||||
As of December 31, 2004 | ||||||||||||
Retained interest valuation at period end: | ||||||||||||
Fair value (dollars in millions) | $ | 5,215 | $ | 5,853 | $ | 182 | ||||||
Weighted-average life(1) | 6.8 | years | 4.5 | years | 7.3 | years | ||||||
Prepayment speed assumptions: | ||||||||||||
Average 12-month CPR prepayment speed assumption(2) | 27 | % | 48 | % | 12 | % | ||||||
Impact on value from a 10% adverse change | $ | (6 | ) | $ | (15 | ) | $ | (7 | ) | |||
Impact on value from a 20% adverse change | $ | (13 | ) | $ | (28 | ) | $ | (14 | ) | |||
Discount rate assumptions: | ||||||||||||
Average discount rate assumption(3) | 4.75 | % | 4.64 | % | 8.5 | % | ||||||
Impact on value from a 10% adverse change | $ | (121 | ) | $ | (92 | ) | $ | (6 | ) | |||
Impact on value from a 20% adverse change | $ | (236 | ) | $ | (181 | ) | $ | (12 | ) | |||
As of December 31, 2003 (Restated) | ||||||||||||
Retained interest valuation at period end: | ||||||||||||
Fair value (dollars in millions) | $ | 4,205 | $ | 10,754 | $ | 106 | ||||||
Weighted-average life(1) | 7.1 | years | 5.7 | years | 7.6 | years | ||||||
Prepayment speed assumptions: | ||||||||||||
Average 12-month CPR prepayment speed assumption(2) | 11 | % | 31 | % | 11 | % | ||||||
Impact on value from a 10% adverse change | $ | (8 | ) | $ | (5 | ) | $ | (4 | ) | |||
Impact on value from a 20% adverse change | $ | (16 | ) | $ | (10 | ) | $ | (7 | ) | |||
Discount rate assumptions: | ||||||||||||
Average discount rate assumption(3) | 4.81 | % | 4.93 | % | 11.6 | % | ||||||
Impact on value from a 10% adverse change | $ | (103 | ) | $ | (211 | ) | $ | (5 | ) | |||
Impact on value from a 20% adverse change | $ | (201 | ) | $ | (414 | ) | $ | (9 | ) |
(1) | The average number of years for which each dollar of unpaid principal on a loan or mortgage-related security remains outstanding. | |
(2) | Represents the expected lifetime average payment rate, which is based on the constant annualized prepayment rate for mortgage related loans. | |
(3) | The interest rate used in determining the present value of future cash flows. |
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For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
(Dollars in millions) | ||||||||||||
Proceeds from new securitizations | $ | 12,335 | $ | 7,226 | $ | 3,154 | ||||||
Guaranty fees | 47 | 37 | 27 | |||||||||
Principal and interest received on retained interests | 5,206 | 16,396 | 7,244 | |||||||||
Purchases of delinquent or foreclosed assets | (50 | ) | (65 | ) | (61 | ) |
Unpaid Principal | Principal Amount on | |||||||
Balance | Non-accrual Loans(1) | |||||||
(Dollars in millions) | ||||||||
As of December 31, 2004 | ||||||||
Loans held for investment | $ | 388,523 | $ | 7,790 | ||||
Loans held for sale | 11,634 | 12 | ||||||
Securitized loans | 27,339 | 9 | ||||||
Total loans managed | $ | 427,496 | $ | 7,811 | ||||
As of December 31, 2003 (Restated) | ||||||||
Loans held for investment | $ | 384,143 | $ | 7,536 | ||||
Loans held for sale | 13,490 | 14 | ||||||
Securitized loans | 18,361 | 12 | ||||||
Total loans managed | $ | 415,994 | $ | 7,562 | ||||
(1) | Loans for which interest is no longer being accrued. In general, we prospectively discontinue accruing interest when payment of principal and interest becomes three or more months past due. |
8. | Financial Guaranties and Master Servicing |
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For the Year Ended December 31, | ||||||||
2004 | 2003 | |||||||
(Restated) | ||||||||
(Dollars in millions) | ||||||||
Beginning balance, as of January 1 | $ | 6,401 | $ | 7 | ||||
Additions to guaranty obligations(1) | 5,050 | 9,314 | ||||||
Amortization of guaranty obligation into guaranty fee income | (2,173 | ) | (1,678 | ) | ||||
Impact of consolidation activity(2) | (494 | ) | (1,242 | ) | ||||
Ending balance, as of December 31 | $ | 8,784 | $ | 6,401 | ||||
(1) | Represents the fair value of the contractual obligation and deferred profit at issuance of new guaranties. | |
(2) | Upon consolidation of MBS trusts, we derecognize our guaranty obligation to the respective trust. See “Note 2, Summary of Significant Accounting Policies” for further details on MBS trust consolidation. |
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9. | Short-term Borrowings and Long-term Debt |
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As of December 31, | ||||||||||||||||
2004 | 2003 | |||||||||||||||
Weighted | Weighted | |||||||||||||||
Average | Average | |||||||||||||||
Interest | Interest | |||||||||||||||
Outstanding | Rate(1) | Outstanding | Rate(1) | |||||||||||||
(Restated) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 2,400 | 1.90 | % | $ | 3,673 | 1.03 | % | ||||||||
Fixed short-term debt: | ||||||||||||||||
U.S. discount notes | $ | 299,728 | 2.14 | % | $ | 327,967 | 1.11 | % | ||||||||
Foreign exchange discount notes | 6,591 | 0.84 | 1,214 | 1.37 | ||||||||||||
Other short-term debt | 3,724 | 1.59 | 1,863 | 1.53 | ||||||||||||
Floating short-term debt | 6,250 | 2.19 | 10,235 | 1.03 | ||||||||||||
Debt from consolidations | 3,987 | 2.20 | 2,383 | 1.14 | ||||||||||||
Total short-term debt | $ | 320,280 | 2.11 | % | $ | 343,662 | 1.11 | % | ||||||||
(1) | Includes discounts, premiums and other deferred price adjustments. |
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As of December 31, | ||||||||||||||||||||||||
2004 | 2003 | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Interest | Interest | |||||||||||||||||||||||
Maturities | Outstanding | Rate(1) | Maturities | Outstanding | Rate(1) | |||||||||||||||||||
(Restated) | ||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Senior fixed: | ||||||||||||||||||||||||
Medium-term notes | 2005-2014 | $ | 197,729 | 3.18 | % | 2004-2013 | $ | 179,815 | 2.88 | % | ||||||||||||||
Benchmark notes & bonds | 2005-2030 | 298,234 | 4.79 | 2004-2030 | 326,762 | 4.99 | ||||||||||||||||||
Foreign exchange notes & bonds | 2005-2028 | 4,792 | 3.68 | 2005-2028 | 3,907 | 3.89 | ||||||||||||||||||
Other long-term debt | 2005-2038 | 39,125 | 6.13 | 2004-2038 | 34,609 | 6.19 | ||||||||||||||||||
539,880 | 4.29 | 545,093 | 4.36 | |||||||||||||||||||||
Senior floating: | ||||||||||||||||||||||||
Medium-term notes | 2005-2009 | 69,949 | 2.28 | 2004-2013 | 50,345 | 1.08 | ||||||||||||||||||
Other long-term debt | 2018-2018 | 300 | 2.74 | 2018-2022 | 554 | 2.07 | ||||||||||||||||||
70,249 | 2.28 | 50,899 | 1.09 | |||||||||||||||||||||
Subordinated fixed: | ||||||||||||||||||||||||
Medium-term notes | 2006-2011 | 6,988 | 5.44 | 2006-2011 | 6,982 | 5.44 | ||||||||||||||||||
Other subordinated debt | 2012-2019 | 7,207 | 6.23 | 2012-2019 | 7,064 | 6.16 | ||||||||||||||||||
14,195 | 5.84 | 14,046 | 5.80 | |||||||||||||||||||||
Debt from consolidations | 2005-2039 | 8,507 | 5.76 | 2004-2039 | 7,580 | 6.30 | ||||||||||||||||||
Total long-term debt(2) | $ | 632,831 | 4.13 | % | $ | 617,618 | 4.15 | % | ||||||||||||||||
(1) | Includes discounts, premiums and other deferred price adjustments. | |
(2) | Reported amounts include a net premium and deferred price adjustments of $11.2 billion and $11.5 billion as of December 31, 2004 and 2003, respectively. |
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Assuming Callable Debt | ||||||||
Long-Term Debt by | Redeemed at Next | |||||||
Year of Maturity | Available Call Date | |||||||
(Dollars in millions) | ||||||||
2005 | $ | 145,955 | $ | 301,896 | ||||
2006 | 107,168 | 92,883 | ||||||
2007 | 100,224 | 62,437 | ||||||
2008 | 58,742 | 39,071 | ||||||
2009 | 52,980 | 30,878 | ||||||
Thereafter | 159,255 | 97,159 | ||||||
Debt from consolidations(1) | 8,507 | 8,507 | ||||||
Total(2) | $ | 632,831 | $ | 632,831 | ||||
(1) | Contractual maturity of debt from consolidations is not a reliable indicator of expected maturity because borrowers of the underlying loans generally have the right to prepay their obligations at any time. | |
(2) | Reported amount includes a net premium and deferred price adjustments of $11.2 billion. |
10. | Derivative Instruments |
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As of December 31, | ||||||||||||||||
2004 | 2003 | |||||||||||||||
Fair | Fair | |||||||||||||||
Notional | Value(1) | Notional | Value(1) | |||||||||||||
(Restated) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||
Swaps: | ||||||||||||||||
Pay-fixed | $ | 142,017 | $ | (6,687 | ) | $ | 364,377 | $ | (12,197 | ) | ||||||
Receive-fixed | 81,193 | 479 | 201,229 | 3,393 | ||||||||||||
Basis | 32,273 | 7 | 32,303 | (8 | ) | |||||||||||
Foreign currency | 11,453 | 686 | 5,195 | 335 | ||||||||||||
Swaptions: | ||||||||||||||||
Pay-fixed | 170,705 | 3,370 | 163,980 | 5,693 | ||||||||||||
Receive-fixed | 147,570 | 7,711 | 141,195 | 8,468 | ||||||||||||
Interest rate caps | 104,150 | 638 | 130,350 | 607 | ||||||||||||
Other(2) | 733 | 84 | 379 | 98 | ||||||||||||
690,094 | 6,288 | 1,039,008 | 6,389 | |||||||||||||
Accrued interest | — | (856 | ) | — | (2,401 | ) | ||||||||||
Total | $ | 690,094 | $ | 5,432 | $ | 1,039,008 | $ | 3,988 | ||||||||
(1) | Represents the net of “Derivative assets at fair value “and “Derivative liabilities at fair value” for derivatives excluding mortgage commitment derivatives. | |
(2) | Includes MBS options, swap credit enhancements and mortgage insurance contracts that are accounted for as derivatives. The mortgage insurance contracts have payment provisions that are not based on a notional amount. |
As of December 31, | ||||||||||||||||
2004 | 2003 | |||||||||||||||
Fair | Fair | |||||||||||||||
Notional | Value(1) | Notional | Value(1) | |||||||||||||
(Restated) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||
Mortgage commitments to purchase whole loans | $ | 2,118 | $ | 4 | $ | 2,709 | $ | 10 | ||||||||
Forward contracts to purchase mortgage-related securities | 20,059 | 43 | 19,882 | 142 | ||||||||||||
Forward contracts to sell mortgage-related securities | 18,423 | (35 | ) | 20,969 | (147 | ) | ||||||||||
Total | $ | 40,600 | $ | 12 | $ | 43,560 | $ | 5 | ||||||||
(1) | Represents the net of “Derivative assets at fair value” and “Derivative liabilities at fair value” for mortgage commitment derivatives. |
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11. | Income Taxes |
For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | ||||||||||||
(Restated) | ||||||||||||
(Dollars in millions) | ||||||||||||
Current income tax expense | $ | 2,651 | $ | 3,216 | $ | 2,935 | ||||||
Deferred income tax benefit | (1,627 | ) | (782 | ) | (2,095 | ) | ||||||
Provision for federal income taxes | $ | 1,024 | $ | 2,434 | $ | 840 | ||||||
For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | ||||||||||||
(Restated) | ||||||||||||
Statutory corporate tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
Tax-exempt interest and dividends received deductions | (5.4 | ) | (3.0 | ) | (6.9 | ) | ||||||
Equity investments in affordable housing projects | (14.5 | ) | (7.4 | ) | (11.8 | ) | ||||||
Penalty | 2.4 | — | — | |||||||||
Other | (0.3 | ) | (0.9 | ) | 1.4 | |||||||
Effective tax rate | 17.2 | % | 23.7 | % | 17.7 | % | ||||||
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As of December 31, | ||||||||
2004 | 2003 | |||||||
(Restated) | ||||||||
(Dollars in millions) | ||||||||
Deferred tax assets: | ||||||||
Debt and derivative instruments | $ | 5,619 | $ | 4,428 | ||||
Net guaranty assets and obligations and related items | 793 | 576 | ||||||
Cash fees and other upfront payments | 601 | 549 | ||||||
Allowance for loan losses and basis in REO properties | 545 | 412 | ||||||
Employee compensation and benefits | 143 | 150 | ||||||
Other, net | 216 | 136 | ||||||
Total deferred tax assets | $ | 7,917 | $ | 6,251 | ||||
Deferred tax liabilities: | ||||||||
Mortgage and mortgage-related assets | 1,764 | 2,107 | ||||||
Partnership and equity investments and related credits | 79 | 62 | ||||||
Total deferred tax liabilities | 1,843 | 2,169 | ||||||
Net deferred tax assets | $ | 6,074 | $ | 4,082 | ||||
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12. | Earnings Per Share |
For the Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Restated) | (Restated) | |||||||||||
(Dollars and shares in millions, | ||||||||||||
except per share amounts) | ||||||||||||
Income before extraordinary gains (losses) and cumulative effect of change in accounting principle | $ | 4,975 | $ | 7,852 | $ | 3,914 | ||||||
Extraordinary gains (losses), net of tax effect | (8 | ) | 195 | — | ||||||||
Cumulative effect of change in accounting principle, net of tax effect | — | 34 | — | |||||||||
Net income | 4,967 | 8,081 | 3,914 | |||||||||
Preferred stock dividends and issuance costs at redemption | (165 | ) | (150 | ) | (111 | ) | ||||||
Net income available to common stockholders | $ | 4,802 | $ | 7,931 | $ | 3,803 | ||||||
Weighted-average common shares outstanding—basic | 970 | 977 | 992 | |||||||||
Dilutive potential common shares(1) | 3 | 4 | 6 | |||||||||
Weighted-average common shares outstanding—diluted | 973 | 981 | 998 | |||||||||
Basic earnings per share: | ||||||||||||
Earnings before extraordinary gains (losses) and cumulative effect of change in accounting principle(2) | $ | 4.96 | $ | 7.88 | $ | 3.83 | ||||||
Extraordinary gains (losses), net of tax effect | (0.01 | ) | 0.20 | — | ||||||||
Cumulative effect of change in accounting principle, net of tax effect | — | 0.04 | — | |||||||||
Basic earnings per share | $ | 4.95 | $ | 8.12 | $ | 3.83 | ||||||
Diluted earnings per share: | ||||||||||||
Earnings before extraordinary gains (losses) and cumulative effect of change in accounting principle(2) | $ | 4.94 | $ | 7.85 | $ | 3.81 | ||||||
Extraordinary gains (losses), net of tax effect | — | 0.20 | — | |||||||||
Cumulative effect of change in accounting principle, net of tax effect | — | 0.03 | — | |||||||||
Diluted earnings per share | $ | 4.94 | $ | 8.08 | $ | 3.81 | ||||||
(1) | Dilutive potential common shares consist primarily of the dilutive effect from our nonqualified stock options. | |
(2) | Amount is net of preferred stock dividends and issuance costs at redemption. |
13. | Stock-Based Compensation Plans |
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For the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||
Weighted- | Weighted- | Weighted- | Weighted- | Weighted | Weighted- | |||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||
Exercise | Fair Value | Exercise | Fair Value | Exercise | Fair Value | |||||||||||||||||||||||||||||||
Options(1) | Price | at Grant Date | Options(1) | Price | at Grant Date | Options(1) | Price | at Grant Date | ||||||||||||||||||||||||||||
Balance, January 1 | 26,077 | $ | 62.78 | $ | 20.71 | 25,131 | $ | 59.16 | $ | 19.94 | 26,234 | $ | 57.05 | $ | 19.22 | |||||||||||||||||||||
Granted | 2,595 | 78.04 | 20.83 | 3,747 | 68.40 | 19.42 | 869 | 78.39 | 26.24 | |||||||||||||||||||||||||||
Exercised | (3,263 | ) | 39.63 | 12.52 | (2,302 | ) | 30.52 | 9.28 | (1,484 | ) | 29.58 | 9.37 | ||||||||||||||||||||||||
Forfeitedand/or expired | (560 | ) | 76.53 | 25.54 | (499 | ) | 71.60 | 24.74 | (488 | ) | 69.97 | 24.50 | ||||||||||||||||||||||||
Balance, December 31 | 24,849 | $ | 67.10 | $ | 21.65 | 26,077 | $ | 62.78 | $ | 20.71 | 25,131 | $ | 59.16 | $ | 19.94 | |||||||||||||||||||||
Options exercisable, December 31 | 18,760 | $ | 64.73 | $ | 21.74 | 15,867 | $ | 58.27 | $ | 19.32 | 15,619 | $ | 51.48 | $ | 16.71 | |||||||||||||||||||||
(1) | Options in thousands. |
As of December 31, 2004 | ||||||||||||||||||||
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted- | ||||||||||||||||||||
Average | Weighted- | Weighted- | ||||||||||||||||||
Remaining | Average | Average | ||||||||||||||||||
Number of | Contractual | Exercise | Number of | Exercise | ||||||||||||||||
Range of Exercise Prices | Options(1) | Life | Price | Options(1) | Price | |||||||||||||||
$18.00 - $35.00 | 1,173 | 0.9 | $ | 27.45 | 1,173 | $ | 27.45 | |||||||||||||
35.01 - 53.00 | 3,034 | 2.5 | 46.48 | 3,033 | 46.48 | |||||||||||||||
53.01 - 70.00 | 9,029 | 5.2 | 65.84 | 6,511 | 64.91 | |||||||||||||||
70.01 - 87.00 | 11,613 | 5.8 | 77.47 | 8,043 | 76.91 | |||||||||||||||
Total | 24,849 | 5.0 | $ | 67.10 | 18,760 | $ | 64.73 | |||||||||||||
(1) | Options in thousands. |
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14. | Employee Retirement Benefits |
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For the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||
Pension Plans | Pension Plans | Pension Plans | ||||||||||||||||||||||||||||||||||
Other Post- | Other Post- | Other Post- | ||||||||||||||||||||||||||||||||||
Non- | Retirement | Non- | Retirement | Non- | Retirement | |||||||||||||||||||||||||||||||
Qualified | Qualified | Plan | Qualified | qualified | Plan | Qualified | qualified | Plan | ||||||||||||||||||||||||||||
(Restated) | (Restated) | |||||||||||||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||||||
Service cost | $ | 38 | $ | 8 | $ | 10 | $ | 31 | $ | 6 | $ | 8 | $ | 25 | $ | 3 | $ | 7 | ||||||||||||||||||
Interest cost | 32 | 7 | 8 | 29 | 7 | 7 | 24 | 3 | 6 | |||||||||||||||||||||||||||
Expected return on plan assets | (28 | ) | — | — | (18 | ) | — | — | (21 | ) | — | — | ||||||||||||||||||||||||
Amortization of initial transition obligation | — | — | 2 | (1 | ) | — | 2 | (1 | ) | — | 2 | |||||||||||||||||||||||||
Amortization of prior service cost | — | 2 | (1 | ) | — | 2 | — | — | — | — | ||||||||||||||||||||||||||
Amortization of net loss | 3 | 4 | 2 | 5 | 1 | 1 | — | 1 | — | |||||||||||||||||||||||||||
Net periodic benefit cost | $ | 45 | $ | 21 | $ | 21 | $ | 46 | $ | 16 | $ | 18 | $ | 27 | $ | 7 | $ | 15 | ||||||||||||||||||
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As of December 31, | ||||||||||||||||||||||||
2004 | 2003 | |||||||||||||||||||||||
Pension Plans | Pension Plans | |||||||||||||||||||||||
Other Post- | Other Post- | |||||||||||||||||||||||
Non- | Retirement | Non- | Retirement | |||||||||||||||||||||
Qualified | Qualified | Plan | Qualified | Qualified | Plan | |||||||||||||||||||
(Restated) | ||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Change in Benefit Obligation | ||||||||||||||||||||||||
Benefit obligation at beginning of year | $ | 472 | $ | 115 | $ | 126 | $ | 391 | $ | 95 | $ | 101 | ||||||||||||
Service cost | 38 | 8 | 10 | 31 | 6 | 8 | ||||||||||||||||||
Interest cost | 32 | 7 | 8 | 29 | 7 | 7 | ||||||||||||||||||
Plan participants’ contributions | — | — | 1 | — | — | 1 | ||||||||||||||||||
Plan amendments | — | 5 | (3 | ) | — | — | (6 | ) | ||||||||||||||||
Net actuarial loss | 63 | 13 | 2 | 27 | 9 | 18 | ||||||||||||||||||
Benefits paid | (7 | ) | (2 | ) | (5 | ) | (6 | ) | (2 | ) | (3 | ) | ||||||||||||
Benefit obligation at end of year | $ | 598 | $ | 146 | $ | 139 | $ | 472 | $ | 115 | $ | 126 | ||||||||||||
Change in Plan Assets | ||||||||||||||||||||||||
Fair value of plan assets at beginning of year | $ | 376 | $ | — | $ | — | $ | 234 | $ | — | $ | — | ||||||||||||
Actual return on plan assets | 47 | — | — | 68 | — | — | ||||||||||||||||||
Employer contributions | 121 | 2 | 4 | 80 | 2 | 3 | ||||||||||||||||||
Plan participants’ contributions | — | — | 1 | — | — | — | ||||||||||||||||||
Benefits paid | (7 | ) | (2 | ) | (5 | ) | (6 | ) | (2 | ) | (3 | ) | ||||||||||||
Fair value of plan assets at end of year | $ | 537 | $ | — | $ | — | $ | 376 | $ | — | $ | — | ||||||||||||
Reconciliation of Funded Status to Net Amount Recognized | ||||||||||||||||||||||||
Funded status at end of period | $ | (61 | ) | $ | (146 | ) | $ | (139 | ) | $ | (96 | ) | $ | (115 | ) | $ | (126 | ) | ||||||
Unrecognized net actuarial loss | 119 | 37 | 36 | 78 | 27 | 35 | ||||||||||||||||||
Unrecognized prior service cost (benefit) | 1 | 21 | (8 | ) | 1 | 17 | (6 | ) | ||||||||||||||||
Unrecognized net transition obligation | — | — | 15 | — | — | 17 | ||||||||||||||||||
Net amount recognized | $ | 59 | $ | (88 | ) | $ | (96 | ) | $ | (17 | ) | $ | (71 | ) | $ | (80 | ) | |||||||
Amounts Recognized in the Consolidated Balance Sheets | ||||||||||||||||||||||||
Other assets: | ||||||||||||||||||||||||
Prepaid benefit cost | $ | 59 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Intangible and other assets | — | 19 | — | — | 13 | — | ||||||||||||||||||
Other liabilities: | ||||||||||||||||||||||||
Accrued benefit cost | — | (88 | ) | (96 | ) | (17 | ) | (71 | ) | (80 | ) | |||||||||||||
Additional minimum pension liability | — | (29 | ) | — | — | (19 | ) | — | ||||||||||||||||
Accumulated other comprehensive income | — | 10 | — | — | 6 | — | ||||||||||||||||||
Net amount recognized | $ | 59 | $ | (88 | ) | $ | (96 | ) | $ | (17 | ) | $ | (71 | ) | $ | (80 | ) | |||||||
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As of December 31, | ||||||||||||||||
2004 | 2003 | |||||||||||||||
Pension Plans | Pension Plans | |||||||||||||||
Non- | Non- | |||||||||||||||
Qualified | Qualified | Qualified | Qualified | |||||||||||||
(Restated) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||
Projected benefit obligation | $ | 598 | $ | 146 | $ | 472 | $ | 115 | ||||||||
Accumulated benefit obligation | 434 | 105 | 348 | 80 | ||||||||||||
Fair value of plan assets | 537 | — | 376 | — |
As of December 31, | ||||||||||||||||||||||||
Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | |||||||||||||||||||
Weighted average assumptions used to determine net periodic benefit costs | ||||||||||||||||||||||||
Discount rate | 6.25 | % | 6.75 | % | 7.25 | % | 6.25 | % | 6.75 | % | 7.25 | % | ||||||||||||
Average rate of increase in future compensation | 5.75 | 6.50 | 6.50 | |||||||||||||||||||||
Expected long-term weighted average rate of return on plan assets | 7.50 | 7.50 | 8.50 | |||||||||||||||||||||
Weighted average assumptions used to determine benefit obligation at year-end | ||||||||||||||||||||||||
Discount rate | 5.75 | % | 6.25 | % | 6.75 | % | 5.75 | % | 6.25 | % | 6.75 | % | ||||||||||||
Average rate of increase in future compensation | 5.75 | 5.75 | 6.50 | |||||||||||||||||||||
Health care cost trend rate assumed for next year | ||||||||||||||||||||||||
Pre-65 | 11.00 | % | 9.00 | % | 11.50 | % | ||||||||||||||||||
Post-65 | 11.00 | 11.00 | 13.00 | |||||||||||||||||||||
Rate that cost trend rate gradually declines to and remains at | 5.00 | 4.50 | 4.50 | |||||||||||||||||||||
Year that rate reaches the ultimate trend rate | 2011 | 2007 | 2007 |
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Asset Allocation | ||||||||||||
Target | As of December 31, | |||||||||||
Investment Type | Allocation | 2004 | 2003 | |||||||||
Equity securities | 75-85 | % | 84 | % | 86 | % | ||||||
Fixed income securities | 12-20 | % | 15 | 14 | ||||||||
Other | 0-2 | % | 1 | — | ||||||||
Total | 100 | % | 100 | % | ||||||||
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Expected Retirement Plan Benefit Payments | ||||||||||||||||
Pension Benefits | Other Post Retirement Benefits | |||||||||||||||
Before Medicare | Medicare Part D | |||||||||||||||
Qualified | Nonqualified | Part D Subsidy | Subsidy | |||||||||||||
(Dollars in millions) | ||||||||||||||||
2005 | $ | 8 | $ | 4 | $ | 4 | $ | — | ||||||||
2006 | 10 | 4 | 5 | — | ||||||||||||
2007 | 12 | 4 | 5 | — | ||||||||||||
2008 | 14 | 5 | 6 | — | ||||||||||||
2009 | 17 | 5 | 7 | 1 | ||||||||||||
2010-2014 | 136 | 34 | 48 | 4 |
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For the Year Ended December 31, | ||||||||
2004 | 2003 | |||||||
(Restated) | ||||||||
Common shares allocated to employees | 1,582,653 | 1,530,161 | ||||||
Common shares committed to be released to employees | 140,692 | 104,886 | ||||||
Unallocated common shares | 2,482 | 1,862 |
15. | Segment Reporting |
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For the Year Ended December 31, 2004 | ||||||||||||||||||||
Single-Family | Capital | |||||||||||||||||||
Credit Guaranty | HCD | Markets | Total | |||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Net interest income (expense)(1) | $ | 478 | $ | (144 | ) | $ | 17,747 | $ | 18,081 | |||||||||||
Guaranty fee income (expense)(2) | 4,455 | 379 | (1,230 | ) | 3,604 | |||||||||||||||
Investment gains (losses), net | 84 | — | (446 | ) | (362 | ) | ||||||||||||||
Derivatives fair value losses, net | — | — | (12,256 | ) | (12,256 | ) | ||||||||||||||
Debt extinguishment losses, net | — | — | (152 | ) | (152 | ) | ||||||||||||||
Losses from partnership investments | — | (702 | ) | — | (702 | ) | ||||||||||||||
Fee and other income (expense) | 220 | 312 | (128 | ) | 404 | |||||||||||||||
Non-interest income (loss) | 4,759 | (11 | ) | (14,212 | ) | (9,464 | ) | |||||||||||||
Provision for credit losses | 312 | 40 | — | 352 | ||||||||||||||||
Other expenses | 1,023 | 395 | 848 | 2,266 | ||||||||||||||||
Income (loss) before federal income taxes and extraordinary gains (losses) | 3,902 | (590 | ) | 2,687 | 5,999 | |||||||||||||||
Provision (benefit) for federal income taxes | 1,388 | (927 | ) | 563 | 1,024 | |||||||||||||||
Income before extraordinary gains (losses) | 2,514 | 337 | 2,124 | 4,975 | ||||||||||||||||
Extraordinary losses, net of tax effect | — | — | (8 | ) | (8 | ) | ||||||||||||||
Net income | $ | 2,514 | $ | 337 | $ | 2,116 | $ | 4,967 | ||||||||||||
(1) | Includes cost of capital charge. | |
(2) | Includes intercompany guaranty fee revenue (expense) of $1.0 billion allocated to Single-Family Credit Guaranty and HCD from Capital Markets for absorbing the credit risk on mortgage loans and Fannie Mae MBS held in our portfolio. |
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For the Year Ended December 31, 2003 | ||||||||||||||||
Single-Family | Capital | |||||||||||||||
Credit Guaranty | HCD | Markets | Total | |||||||||||||
(Restated) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 495 | $ | (99 | ) | $ | 19,081 | $ | 19,477 | |||||||
Guaranty fee income (expense)(2) | 4,222 | 303 | (1,244 | ) | 3,281 | |||||||||||
Investment gains (losses), net | 76 | — | (1,307 | ) | (1,231 | ) | ||||||||||
Derivatives fair value losses, net | — | — | (6,289 | ) | (6,289 | ) | ||||||||||
Debt extinguishment losses, net | — | — | (2,692 | ) | (2,692 | ) | ||||||||||
Losses from partnership investments | — | (637 | ) | — | (637 | ) | ||||||||||
Fee and other income (expense) | 277 | 209 | (146 | ) | 340 | |||||||||||
Non-interest income (loss) | 4,575 | (125 | ) | (11,678 | ) | (7,228 | ) | |||||||||
Provision for credit losses | 331 | 34 | — | 365 | ||||||||||||
Other expenses | 925 | 238 | 435 | 1,598 | ||||||||||||
Income (loss) before federal income taxes, extraordinary gains (losses) and cumulative effect of change in accounting principle | 3,814 | (496 | ) | 6,968 | 10,286 | |||||||||||
Provision (benefit) for federal income taxes | 1,333 | (782 | ) | 1,883 | 2,434 | |||||||||||
Income before extraordinary gains (losses) and cumulative effect of change in accounting principle | 2,481 | 286 | 5,085 | 7,852 | ||||||||||||
Extraordinary gain, net of tax effect | — | — | 195 | 195 | ||||||||||||
Cumulative effect of change in accounting principle, net of tax effect | — | — | 34 | 34 | ||||||||||||
Net income | $ | 2,481 | $ | 286 | $ | 5,314 | $ | 8,081 | ||||||||
(1) | Includes cost of capital charge. | |
(2) | Includes intercompany guaranty fee revenue (expense) of $1.0 billion allocated to Single-Family Credit Guaranty and HCD from Capital Markets for absorbing the credit risk on mortgage loans and Fannie Mae MBS held in our portfolio. |
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For the Year Ended December 31, 2002 | ||||||||||||||||
Single-Family | Capital | |||||||||||||||
Credit Guaranty | HCD | Markets | Total | |||||||||||||
(Restated) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 487 | $ | (100 | ) | $ | 18,039 | $ | 18,426 | |||||||
Guaranty fee income (expense)(2) | 3,264 | 271 | (1,019 | ) | 2,516 | |||||||||||
Investment gains (losses), net | 41 | — | (542 | ) | (501 | ) | ||||||||||
Derivatives fair value losses, net | — | — | (12,919 | ) | (12,919 | ) | ||||||||||
Debt extinguishment losses, net | — | — | (814 | ) | (814 | ) | ||||||||||
Losses from partnership investments | — | (509 | ) | — | (509 | ) | ||||||||||
Fee and other income (expense) | 206 | 149 | (266 | ) | 89 | |||||||||||
Non-interest income (loss) | 3,511 | (89 | ) | (15,560 | ) | (12,138 | ) | |||||||||
Provision for credit losses | 237 | 47 | — | 284 | ||||||||||||
Other expenses | 754 | 188 | 308 | 1,250 | ||||||||||||
Income (loss) before federal income taxes | 3,007 | (424 | ) | 2,171 | 4,754 | |||||||||||
Provision (benefit) for federal income taxes | 1,049 | (608 | ) | 399 | 840 | |||||||||||
Net income | $ | 1,958 | $ | 184 | $ | 1,772 | $ | 3,914 | ||||||||
(1) | Includes cost of capital charge. | |
(2) | Includes intercompany guaranty fee revenue (expense) of $829 million allocated to Single-Family Credit Guaranty and HCD from Capital Markets for absorbing the credit risk on mortgage loans and Fannie Mae MBS held in our portfolio. |
As of December 31, | ||||||||
2004 | 2003 | |||||||
(Restated) | ||||||||
(Dollars in millions) | ||||||||
Single-Family Credit Guaranty | $ | 11,543 | $ | 8,724 | ||||
HCD | 10,166 | 7,853 | ||||||
Capital Markets | 999,225 | 1,005,698 | ||||||
Total assets | $ | 1,020,934 | $ | 1,022,275 | ||||
16. | Regulatory Capital Requirements |
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As of December 31, | ||||||||
2004(1) | 2003(1) | |||||||
(Restated) | ||||||||
(Dollars in millions) | ||||||||
Core capital(2) | $ | 34,514 | $ | 26,953 | ||||
Required minimum capital(3) | 32,121 | 31,816 | ||||||
Surplus (deficit) of core capital over/under required minimum capital | $ | 2,393 | $ | (4,863 | ) | |||
Surplus (deficit) of core capital percentage over/under required minimum capital(4) | 7.4 | % | (15.3 | )% | ||||
Total capital(5) | $ | 35,196 | $ | 27,487 | ||||
Required risk-based capital(6) | 10,039 | 27,221 | ||||||
Surplus of total capital over required risk-based capital | $ | 25,157 | $ | 266 | ||||
Core capital(2) | $ | 34,514 | $ | 26,953 | ||||
Required critical capital(7) | 16,435 | 16,261 | ||||||
Surplus of core capital over required critical capital | $ | 18,078 | $ | 10,691 | ||||
Surplus of core capital percentage over required critical capital(8) | 110.0 | % | 65.7 | % |
(1) | Except for required risk-based capital amounts, all amounts represent estimates which will be resubmitted to OFHEO for their certification. Required risk-based capital amounts represent previously announced results by OFHEO. OFHEO may determine that results require restatement in the future based upon analysis provided by us. | |
(2) | The sum of (a) the stated value of our outstanding common stock (common stock less treasury stock); (b) the stated value of our outstanding non-cumulative perpetual preferred stock; (c) our paid-in capital; and (d) our retained earnings. Core capital excludes AOCI. | |
(3) | Generally, the sum of (a) 2.50% of on-balance sheet assets; (b) 0.45% of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and (c) up to 0.45% of other off-balance sheet obligations, which may be adjusted by the Director of OFHEO under certain circumstances (See 12 CFR 1750.4 for existing adjustments made by the Director of OFHEO). | |
(4) | Defined as the surplus (deficit) of core capital over required minimum capital expressed as a percentage of required minimum capital. | |
(5) | The sum of (a) core capital and (b) the total allowance for loan losses and reserve for guaranty losses, less (c) the specific loss allowance (that is, the allowance required on individually-impaired loans). The specific loss allowance totaled $63 million and $68 million as of December 31, 2004 and 2003, respectively. |
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(6) | Defined as the amount of total capital required to be held to absorb projected losses flowing from future adverse interest rate and credit risk conditions specified by statute (see 12 CFR 1750.13 for conditions), plus 30% mandated by statute to cover management and operations risk. | |
(7) | Generally, the sum of (a) 1.25% of on-balance sheet assets; (b) 0.25% of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties and (c) up to 0.25% of other off-balance sheet obligations, which may be adjusted by the Director of OFHEO under certain circumstances. | |
(8) | Defined as the surplus of core capital over critical capital expressed as a percentage of critical capital. |
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• | We must continue our commitment to maintain a 30% capital surplus over our statutory minimum capital requirement until such time as the Director of OFHEO determines that the requirement should be modified or expire, considering factors such as resolution of accounting and internal control issues. | |
• | While the capital restoration plan is in effect, we must seek the approval of the Director of OFHEO before engaging in any transaction that could have the effect of reducing our capital surplus below an amount equal to 30% more than our statutory minimum capital requirement. | |
• | We must submit a written report to OFHEO detailing the rationale and process for any proposed capital distribution before making the distribution. |
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• | We are not permitted to increase our net mortgage portfolio assets above the amount shown in the minimum capital report to OFHEO as of December 31, 2005 ($727.75 billion), except under limited circumstances at the discretion of OFHEO. Net mortgage portfolio assets are defined as mortgage loans and securities net ofmark-to-market adjustments foravailable-for-sale securities, allowance for loan losses, and unamortized premiums and discounts. We will be subject to this limitation on portfolio growth until the Director of OFHEO has determined that expiration of the limitation is appropriate in light of information regarding: capital; market liquidity issues; housing goals; risk management improvements; outside auditor’s opinion that the consolidated financial statements present fairly in all material respects the financial condition of the company; receipt of an unqualified opinion from an outside audit firm that our internal controls are effective pursuant to section 404 of the Sarbanes-Oxley Act of 2002; or other relevant information. |
17. | Preferred Stock |
Annual | ||||||||||||||||||||||||||||||||
Dividend Rate | ||||||||||||||||||||||||||||||||
Issued and Outstanding as of December 31, | Stated | as of | ||||||||||||||||||||||||||||||
Issue | 2004 | 2003 | Value | December 31, | Redeemable on | |||||||||||||||||||||||||||
Title | Date | Shares | Amount | Shares | Amount | per Share | 2004 | or After | ||||||||||||||||||||||||
(Restated) | ||||||||||||||||||||||||||||||||
Series D | September 30, 1998 | 3,000,000 | $ | 150,000,000 | 3,000,000 | $ | 150,000,000 | $ | 50 | 5.250 | % | September 30, 1999 | ||||||||||||||||||||
Series E | April 15, 1999 | 3,000,000 | 150,000,000 | 3,000,000 | 150,000,000 | 50 | 5.100 | April 15, 2004 | ||||||||||||||||||||||||
Series F | March 20, 2000 | 13,800,000 | 690,000,000 | 13,800,000 | 690,000,000 | 50 | 1.370 | (1) | March 31, 2002 | (3) | ||||||||||||||||||||||
Series G | August 8, 2000 | 5,750,000 | 287,500,000 | 5,750,000 | 287,500,000 | 50 | 2.350 | (2) | September 30, 2002 | (3) | ||||||||||||||||||||||
Series H | April 6, 2001 | 8,000,000 | 400,000,000 | 8,000,000 | 400,000,000 | 50 | 5.810 | April 6, 2006 | ||||||||||||||||||||||||
Series I | October 28, 2002 | 6,000,000 | 300,000,000 | 6,000,000 | 300,000,000 | 50 | 5.375 | October 28, 2007 | ||||||||||||||||||||||||
Series J | November 26, 2002 | 14,000,000 | 700,000,000 | 14,000,000 | 700,000,000 | 50 | 4.716 | (4) | November 26, 2004 | |||||||||||||||||||||||
Series K | March 18, 2003 | 8,000,000 | 400,000,000 | 8,000,000 | 400,000,000 | 50 | 3.000 | (5) | March 18, 2005 | |||||||||||||||||||||||
Series L | April 29, 2003 | 6,900,000 | 345,000,000 | 6,900,000 | 345,000,000 | 50 | 5.125 | April 29, 2008 | ||||||||||||||||||||||||
Series M | June 10, 2003 | 9,200,000 | 460,000,000 | 9,200,000 | 460,000,000 | 50 | 4.750 | June 10, 2008 | ||||||||||||||||||||||||
Series N | September 25, 2003 | 4,500,000 | 225,000,000 | 4,500,000 | 225,000,000 | 50 | 5.500 | September 25, 2008 | ||||||||||||||||||||||||
Series O | December 30, 2004 | 50,000,000 | 2,500,000,000 | — | — | 50 | 7.000 | (6) | December 31, 2007 | |||||||||||||||||||||||
ConvertibleSeries 2004-1 | December 30, 2004 | 25,000 | 2,500,000,000 | — | — | 100,000 | 5.375 | January 5, 2008 | ||||||||||||||||||||||||
Total | 132,175,000 | $ | 9,107,500,000 | 82,150,000 | $ | 4,107,500,000 | ||||||||||||||||||||||||||
(1) | Rate effective March 31, 2004. Variable dividend rate resets every two years at the two-year Constant Maturity U.S. Treasury Rate (“CMT”) minus 0.16% with a cap of 11% per year. As of December 31, 2003, the annual dividend rate was 3.54%. As of March 31, 2006, the annual dividend rate reset to 4.56%. | |
(2) | Rate effective September 30, 2004. Variable dividend rate resets every two years at the two-year CMT rate minus 0.18% with a cap of 11% per year. As of December 31, 2003, the annual dividend rate was 1.83%. As of September 30, 2006, the annual dividend rate reset to 4.59%. | |
(3) | Represents initial call date. Redeemable every two years thereafter. | |
(4) | Rate effective November 26, 2004. Variable dividend rate resets every two years at the two-year U.S. Dollar Swap Rate plus 1.38% with a cap of 8% per year. As of December 31, 2003, the annual dividend rate was 3.78%. As of November 26, 2006, the annual dividend rate reset to 6.453%. | |
(5) | Initial rate. Variable dividend rate that resets every two years thereafter at the2-year U.S. Dollar Swap Rate plus 1.33% with a cap of 8% per year. As of March 18, 2005, the annual dividend rate was 5.396%. | |
(6) | Initial rate. Variable dividend rate that resets quarterly thereafter at the greater of 7.00% or the10-year CMT rate plus 2.375%. As of September 30, 2006, the quarterly dividend rate reset to 7.085%. |
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18. | Concentrations of Credit Risk |
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Geographic Distribution(1) | ||||||||||||||||
Single-family Conventional | Multifamily | |||||||||||||||
Mortgage Credit Book(2) | Mortgage Credit Book(3) | |||||||||||||||
As of December 31, | As of December 31, | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Midwest | 17 | % | 17 | % | 9 | % | 9 | % | ||||||||
Northeast | 19 | 18 | 19 | 18 | ||||||||||||
Southeast | 22 | 22 | 24 | 21 | ||||||||||||
Southwest | 16 | 16 | 13 | 14 | ||||||||||||
West | 26 | 27 | 35 | 38 | ||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
(1) | Midwest includes IL, IN, IA, MI, MN, NE, ND, OH, SD and WI; Northeast includes CT, DE, ME, MA, NH, NJ, NY, PA, PR, RI, VT and VI; Southeast includes AL, DC, FL, GA, KY, MD, NC, MS, SC, TN, VA and WV; Southwest includes AZ, AR, CO, KS, LA, MO, NM, OK, TX and UT; West includes AK, CA, GU, HI, ID, MT, NV, OR, WA and WY. | |
(2) | Includes the portion of our conventional single-family mortgage credit book for which we have more detailed loan-level information. Excludes non-Fannie Mae mortgage-related securities backed by single-family mortgage loans and credit enhancements on single-family mortgage loans. | |
(3) | Includes mortgage loans in our portfolio, credit enhancements and outstanding Fannie Mae MBS (excluding Fannie Mae MBS backed by non-Fannie Mae mortgage-related securities) where we have more detailed loan-level information. |
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As of December 31, 2004 | ||||||||||||||||||||||||
Credit Rating(1) | ||||||||||||||||||||||||
AAA | AA | A | Subtotal | Other(2) | Total | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Credit loss exposure(3) | $ | 57 | $ | 3,200 | $ | 3,182 | $ | 6,439 | $ | 88 | $ | 6,527 | ||||||||||||
Collateral held(4) | — | 2,984 | 3,001 | 5,985 | — | 5,985 | ||||||||||||||||||
Exposure net of collateral | $ | 57 | $ | 216 | $ | 181 | $ | 454 | $ | 88 | $ | 542 | ||||||||||||
Additional information: | ||||||||||||||||||||||||
Notional amount | $ | 842 | $ | 327,895 | $ | 360,625 | $ | 689,362 | $ | 732 | $ | 690,094 | ||||||||||||
Number of counterparties | 3 | 12 | 8 | 23 |
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As of December 31, 2003 | ||||||||||||||||||||||||
Credit Rating(1) | ||||||||||||||||||||||||
AAA | AA | A | Subtotal | Other(2) | Total | |||||||||||||||||||
(Restated) | ||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Credit loss exposure(3) | $ | 18 | $ | 3,422 | $ | 3,515 | $ | 6,955 | $ | 103 | $ | 7,058 | ||||||||||||
Collateral held(4) | — | 3,126 | 3,437 | 6,563 | — | 6,563 | ||||||||||||||||||
Exposure net of collateral | $ | 18 | $ | 296 | $ | 78 | $ | 392 | $ | 103 | $ | 495 | ||||||||||||
Additional information: | ||||||||||||||||||||||||
Notional amount | $ | 1,829 | $ | 489,714 | $ | 547,086 | $ | 1,038,629 | $ | 379 | $ | 1,039,008 | ||||||||||||
Number of counterparties | 3 | 12 | 8 | 23 |
(1) | We manage collateral requirements based on the lower credit rating of the legal entity as issued by Standard & Poor’s (“S&P”) and Moody’s. The credit rating reflects the equivalent S&P rating for any ratings based on Moody’s scale. | |
(2) | Includes MBS options, mortgage insurance contracts and swap credit enhancements accounted for as derivatives. | |
(3) | Represents the exposure to credit loss on derivative instruments, which is estimated by calculating the cost, on a present value basis, to replace all outstanding contracts in a gain position. Derivative gains and losses with the same counterparty are presented net where a legal right of offset exists under an enforceable master netting agreement. This table excludes mortgage commitments accounted for as derivatives. | |
(4) | Represents the collateral held as of December 31, 2004 and 2003 adjusted for the collateral transferred subsequent to December 31 based on credit loss exposure limits on derivative instruments as of December 31, 2004 and 2003. Settlement dates vary by counterparty and range from one to three business days following the credit loss exposure valuation dates of December 31, 2004 and 2003. The value of the collateral is reduced in accordance with counterparty agreements to help ensure recovery of any loss through the disposition of the collateral. We posted non-cash collateral of $56 million and $301 million related to our counterparties credit exposure to us as of December 31, 2004 and 2003, respectively. |
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As of December 31, | ||||||||
2004 | 2003 | |||||||
(Restated) | ||||||||
(Dollars in millions) | ||||||||
Fannie Mae MBS and other guaranties(1) | $ | 444,526 | $ | 683,860 | ||||
Loan purchase commitments | 2,410 | 1,486 |
(1) | Represents maximum exposure on guaranties not reflected in the consolidated balance sheets. See “Note 8, Financial Guaranties and Master Servicing” for maximum exposure associated with guaranties reflected in the consolidated balance sheets. |
19. | Fair Value of Financial Instruments |
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As of December 31, | ||||||||||||||||
2004 | 2003 | |||||||||||||||
Estimated Fair | Estimated Fair | |||||||||||||||
Carrying Value | Value | Carrying Value | Value | |||||||||||||
(Restated) | (Restated) | |||||||||||||||
(Dollars in millions) | ||||||||||||||||
Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 3,701 | $ | 3,701 | $ | 4,804 | $ | 4,804 | ||||||||
Federal funds sold and securities purchased under agreements to resell | 3,930 | 3,930 | 12,686 | 12,686 | ||||||||||||
Trading securities | 35,287 | 35,287 | 43,798 | 43,798 | ||||||||||||
Available-for-sale securities | 532,095 | 532,095 | 523,272 | 523,272 | ||||||||||||
Mortgage loans held for sale | 11,721 | 11,852 | 13,596 | 13,750 | ||||||||||||
Mortgage loans held for investment, net of allowance for loan losses | 389,651 | 397,603 | 385,465 | 394,734 | ||||||||||||
Derivative assets | 6,589 | 6,589 | 7,218 | 7,218 | ||||||||||||
Guaranty assets and buy-ups | 6,616 | 9,263 | 4,998 | 8,617 | ||||||||||||
Total financial assets | $ | 989,590 | $ | 1,000,320 | $ | 995,837 | $ | 1,008,879 | ||||||||
Liabilities: | ||||||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | $ | 2,400 | $ | 2,399 | $ | 3,673 | $ | 3,668 | ||||||||
Short-term debt | 320,280 | 319,713 | 343,662 | 343,566 | ||||||||||||
Long-term debt | 632,831 | 648,276 | 617,618 | 640,671 | ||||||||||||
Derivative liabilities | 1,145 | 1,145 | 3,225 | 3,225 | ||||||||||||
Guaranty obligations | 8,784 | 5,272 | 6,401 | 5,145 | ||||||||||||
Total financial liabilities | $ | 965,440 | $ | 976,805 | $ | 974,579 | $ | 996,275 | ||||||||
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20. | Commitments and Contingencies |
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As of December 31, | ||||
2004 | ||||
(Dollars in millions) | ||||
2005 | $ | 32 | ||
2006 | 34 | |||
2007 | 33 | |||
2008 | 22 | |||
2009 | 18 | |||
Thereafter | 90 | |||
Total | $ | 229 | ||
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21. | Selected Quarterly Financial Information (Unaudited) |
As of | ||||||||||||||||||||||||
March 31, | June 30, | |||||||||||||||||||||||
2004 | 2004 | |||||||||||||||||||||||
As | As | |||||||||||||||||||||||
Previously | As | Previously | As | September 30, | December 31, | |||||||||||||||||||
Reported(1) | Restated | Reported(1) | Restated | 2004 | 2004 | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 3,214 | $ | 5,205 | $ | 340 | $ | 3,479 | $ | 3,857 | $ | 2,655 | ||||||||||||
Investments in securities: | ||||||||||||||||||||||||
Trading, at fair value | 6 | 42,552 | 11 | 38,323 | 37,223 | 35,287 | ||||||||||||||||||
Available-for-sale, at fair value | 225,853 | 517,106 | 240,475 | 515,067 | 535,826 | 532,095 | ||||||||||||||||||
Held-to-maturity, at fair value | 468,863 | — | 458,257 | — | — | — | ||||||||||||||||||
Total investments | 694,722 | 559,658 | 698,743 | 553,390 | 573,049 | 567,382 | ||||||||||||||||||
Mortgage loans: | ||||||||||||||||||||||||
Loans held for sale, at lower of cost or market | 6,655 | 13,318 | 2,637 | 11,363 | 11,280 | 11,721 | ||||||||||||||||||
Loans held for investment, at amortized cost | 236,054 | 380,115 | 239,982 | 385,253 | 389,766 | 390,000 | ||||||||||||||||||
Allowance for loan losses | (85 | ) | (288 | ) | (80 | ) | (296 | ) | (288 | ) | (349 | ) | ||||||||||||
Total loans | 242,624 | 393,145 | 242,539 | 396,320 | 400,758 | 401,372 | ||||||||||||||||||
Derivative assets at fair value | 7,464 | 7,223 | 11,300 | 9,736 | 8,729 | 6,589 | ||||||||||||||||||
Guaranty assets | 5,100 | 4,798 | 5,810 | 5,602 | 5,652 | 5,924 | ||||||||||||||||||
Deferred tax assets | 11,622 | 4,767 | 8,934 | 7,043 | 6,508 | 6,074 | ||||||||||||||||||
Other assets | 30,522 | 36,281 | 21,675 | 26,480 | 28,496 | 30,938 | ||||||||||||||||||
Total assets | $ | 995,268 | $ | 1,011,077 | $ | 989,341 | $ | 1,002,050 | $ | 1,027,049 | $ | 1,020,934 | ||||||||||||
Liabilities and Stockholders’ Equity: | ||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Short-term debt | $ | 468,999 | $ | 337,312 | $ | 422,899 | $ | 312,247 | $ | 336,321 | $ | 320,280 | ||||||||||||
Long-term debt | 474,091 | 606,340 | 515,296 | 632,076 | 630,585 | 632,831 | ||||||||||||||||||
Derivative liabilities at fair value | 4,146 | 5,357 | 318 | 558 | 1,885 | 1,145 | ||||||||||||||||||
Reserve for guaranty losses | 710 | 271 | 677 | 271 | 299 | 396 | ||||||||||||||||||
Guaranty obligations | 5,100 | 7,084 | 5,810 | 8,208 | 8,396 | 8,784 | ||||||||||||||||||
Other liabilities | 21,370 | 20,731 | 18,176 | 18,395 | 16,549 | 18,520 | ||||||||||||||||||
Total liabilities | 974,416 | 977,095 | 963,176 | 971,755 | 994,035 | 981,956 | ||||||||||||||||||
Minority interests in consolidated subsidiaries | 47 | 52 | 44 | 50 | 47 | 76 | ||||||||||||||||||
Stockholders’ Equity: | ||||||||||||||||||||||||
Retained earnings | 36,845 | 27,307 | 37,414 | 31,079 | 29,668 | 30,705 | ||||||||||||||||||
Accumulated other comprehensive income | (14,896 | ) | 7,686 | (9,994 | ) | 374 | 4,462 | 4,387 | ||||||||||||||||
Other stockholders’ equity | (1,144 | ) | (1,063 | ) | (1,299 | ) | (1,208 | ) | (1,163 | ) | 3,810 | |||||||||||||
Total stockholders’ equity | 20,805 | 33,930 | 26,121 | 30,245 | 32,967 | 38,902 | ||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 995,268 | $ | 1,011,077 | $ | 989,341 | $ | 1,002,050 | $ | 1,027,049 | $ | 1,020,934 | ||||||||||||
(1) | Certain amounts have been reclassified to conform to the current condensed consolidated balance sheet presentation. |
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For the Quarter Ended | ||||||||||||||||||||||||
March 31, 2004 | June 30, 2004 | |||||||||||||||||||||||
As | As | |||||||||||||||||||||||
Previously | As | Previously | As | September 30, | December 31, | |||||||||||||||||||
Reported(1) | Restated | Reported(1) | Restated | 2004 | 2004(2) | |||||||||||||||||||
(Dollars and shares in millions, except per share amounts) | ||||||||||||||||||||||||
Net interest income | $ | 3,196 | $ | 5,062 | $ | 3,113 | $ | 4,836 | $ | 4,000 | $ | 4,183 | ||||||||||||
Guaranty fee income | 737 | 891 | 657 | 727 | 1,067 | 919 | ||||||||||||||||||
Investment gains (losses), net | (8 | ) | 525 | (273 | ) | (1,518 | ) | 887 | (256 | ) | ||||||||||||||
Derivatives fair value gains (losses), net | (972 | ) | (6,446 | ) | (1,958 | ) | 2,269 | (7,136 | ) | (943 | ) | |||||||||||||
Debt extinguishment gains (losses), net | (27 | ) | (78 | ) | 24 | (7 | ) | (21 | ) | (46 | ) | |||||||||||||
Loss from partnership investments | (92 | ) | (145 | ) | (86 | ) | (177 | ) | (177 | ) | (203 | ) | ||||||||||||
Fee and other income | 158 | 56 | 208 | 413 | 103 | (168 | ) | |||||||||||||||||
Provision for credit losses | (32 | ) | (13 | ) | 12 | (55 | ) | (65 | ) | (219 | ) | |||||||||||||
Other expenses | (402 | ) | (456 | ) | (416 | ) | (415 | ) | (417 | ) | (978 | ) | ||||||||||||
Income (loss) before federal income taxes and extraordinary gains (losses) | 2,558 | (604 | ) | 1,281 | 6,073 | (1,759 | ) | 2,289 | ||||||||||||||||
Provision (benefit) for federal income taxes | 659 | (529 | ) | 169 | 1,753 | (910 | ) | 710 | ||||||||||||||||
Income (loss) before extraordinary gains (losses) | 1,899 | (75 | ) | 1,112 | 4,320 | (849 | ) | 1,579 | ||||||||||||||||
Extraordinary gains (losses), net of tax effect | — | 10 | — | (3 | ) | (18 | ) | 3 | ||||||||||||||||
Net income (loss) | $ | 1,899 | $ | (65 | ) | $ | 1,112 | $ | 4,317 | $ | (867 | ) | $ | 1,582 | ||||||||||
Preferred stock dividends and issuance costs at redemption | (43 | ) | (43 | ) | (40 | ) | (40 | ) | (41 | ) | (41 | ) | ||||||||||||
Net income (loss) available to common stockholders | $ | 1,856 | $ | (108 | ) | $ | 1,072 | $ | 4,277 | $ | (908 | ) | $ | 1,541 | ||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||||||
Earnings before extraordinary gains (losses) | $ | 1.91 | $ | (0.12 | ) | $ | 1.11 | $ | 4.41 | $ | (0.92 | ) | $ | 1.59 | ||||||||||
Extraordinary gains (losses), net of tax effect | — | 0.01 | — | — | (0.02 | ) | — | |||||||||||||||||
Basic earnings (loss) per share | $ | 1.91 | $ | (0.11 | ) | $ | 1.11 | $ | 4.41 | $ | (0.94 | ) | $ | 1.59 | ||||||||||
Diluted earnings (loss) per share | ||||||||||||||||||||||||
Earnings before extraordinary gains (losses) | $ | 1.90 | $ | (0.12 | ) | $ | 1.10 | $ | 4.40 | $ | (0.92 | ) | $ | 1.59 | ||||||||||
Extraordinary gains (losses), net of tax effect | — | 0.01 | — | — | (0.02 | ) | — | |||||||||||||||||
Diluted earnings (loss) per share | $ | 1.90 | $ | (0.11 | ) | $ | 1.10 | $ | 4.40 | $ | (0.94 | ) | $ | 1.59 | ||||||||||
Weighted-average common shares outstanding Basic | 972 | 972 | 969 | 969 | 968 | 969 | ||||||||||||||||||
Diluted | 975 | 972 | 970 | 973 | 968 | 972 |
(1) | Certain amounts have been reclassified to conform to the current condensed consolidated statement of income presentation. | |
(2) | Includes the $400 million OFHEO and SEC penalty, $116 million impairment of capitalized software and a $317 million impairment of securities. |
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For the Quarter Ended March 31, 2004 | ||||||||||||||||
Single-Family | Capital | |||||||||||||||
Credit Guaranty | HCD | Markets | Total | |||||||||||||
(Restated) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 93 | $ | (37 | ) | $ | 5,006 | $ | 5,062 | |||||||
Guaranty fee income (expense)(2) | 1,096 | 98 | (303 | ) | 891 | |||||||||||
Investment gains, net | 32 | — | 493 | 525 | ||||||||||||
Derivatives fair value losses, net | — | — | (6,446 | ) | (6,446 | ) | ||||||||||
Debt extinguishment losses, net | — | — | (78 | ) | (78 | ) | ||||||||||
Losses from partnership investments | — | (145 | ) | — | (145 | ) | ||||||||||
Fee and other income (expense) | 49 | 48 | (41 | ) | 56 | |||||||||||
Provision for credit losses | (3 | ) | (10 | ) | — | (13 | ) | |||||||||
Other expenses | (236 | ) | (84 | ) | (136 | ) | (456 | ) | ||||||||
Income (loss) before federal income taxes and extraordinary gains (losses) | 1,031 | (130 | ) | (1,505 | ) | (604 | ) | |||||||||
Provision (benefit) for federal income taxes | 359 | (226 | ) | (662 | ) | (529 | ) | |||||||||
Income (loss) before extraordinary gains (losses) | 672 | 96 | (843 | ) | (75 | ) | ||||||||||
Extraordinary gain, net of tax effect | — | — | 10 | 10 | ||||||||||||
Net income (loss) | $ | 672 | $ | 96 | $ | (833 | ) | $ | (65 | ) | ||||||
(1) | Includes cost of capital charge. | |
(2) | Includes intercompany guaranty fee revenue (expense) of $254 million allocated to Single-Family Credit Guaranty and HCD from Capital Markets for absorbing the credit risk on mortgage loans and Fannie Mae MBS held in our portfolio. |
For the Quarter Ended June 30, 2004 | ||||||||||||||||
Single-Family | Capital | |||||||||||||||
Credit Guaranty | HCD | Markets | Total | |||||||||||||
(Restated) | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 118 | $ | (34 | ) | $ | 4,752 | $ | 4,836 | |||||||
Guaranty fee income (expense)(2) | 954 | 77 | (304 | ) | 727 | |||||||||||
Investment gains (losses), net | 29 | — | (1,547 | ) | (1,518 | ) | ||||||||||
Derivatives fair value gains, net | — | — | 2,269 | 2,269 | ||||||||||||
Debt extinguishment losses, net | — | — | (7 | ) | (7 | ) | ||||||||||
Losses from partnership investments | — | (177 | ) | — | (177 | ) | ||||||||||
Fee and other income | 77 | 72 | 264 | 413 | ||||||||||||
Provision for credit losses | (34 | ) | (21 | ) | — | (55 | ) | |||||||||
Other expenses | (212 | ) | (86 | ) | (117 | ) | (415 | ) | ||||||||
Income (loss) before federal income taxes and extraordinary gains (losses) | 932 | (169 | ) | 5,310 | 6,073 | |||||||||||
Provision (benefit) for federal income taxes | 326 | (243 | ) | 1,670 | 1,753 | |||||||||||
Income before extraordinary gains (losses) | 606 | 74 | 3,640 | 4,320 | ||||||||||||
Extraordinary losses, net of tax effect | — | — | (3 | ) | (3 | ) | ||||||||||
Net income | $ | 606 | $ | 74 | $ | 3,637 | $ | 4,317 | ||||||||
(1) | Includes cost of capital charge. | |
(2) | Includes intercompany guaranty fee revenue (expense) of $257 million allocated to Single-Family Credit Guaranty and HCD from Capital Markets for absorbing the credit risk on mortgage loans and Fannie Mae MBS held in our portfolio. |
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For the Quarter Ended September 30, 2004 | ||||||||||||||||
Single-Family | Capital | |||||||||||||||
Credit Guaranty | HCD | Markets | Total | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 125 | $ | (36 | ) | $ | 3,911 | $ | 4,000 | |||||||
Guaranty fee income (expense)(2) | 1,278 | 100 | (311 | ) | 1,067 | |||||||||||
Investment gains, net | 8 | — | 879 | 887 | ||||||||||||
Derivatives fair value losses, net | — | — | (7,136 | ) | (7,136 | ) | ||||||||||
Debt extinguishment losses, net | — | — | (21 | ) | (21 | ) | ||||||||||
Losses from partnership investments | — | (177 | ) | — | (177 | ) | ||||||||||
Fee and other income (expense) | 41 | 87 | (25 | ) | 103 | |||||||||||
Provision for credit losses | (74 | ) | 9 | — | (65 | ) | ||||||||||
Other expenses | (215 | ) | (93 | ) | (109 | ) | (417 | ) | ||||||||
Income (loss) before federal income taxes and extraordinary gains (losses) | 1,163 | (110 | ) | (2,812 | ) | (1,759 | ) | |||||||||
Provision (benefit) for federal income taxes | 406 | (220 | ) | (1,096 | ) | (910 | ) | |||||||||
Income (loss) before extraordinary gains (losses) | 757 | 110 | (1,716 | ) | (849 | ) | ||||||||||
Extraordinary losses, net of tax effect | — | — | (18 | ) | (18 | ) | ||||||||||
Net income (loss) | $ | 757 | $ | 110 | $ | (1,734 | ) | $ | (867 | ) | ||||||
(1) | Includes cost of capital charge. | |
(2) | Includes intercompany guaranty fee revenue (expense) of $260 million allocated to Single-Family Credit Guaranty and HCD from Capital Markets for absorbing the credit risk on mortgage loans and Fannie Mae MBS held in our portfolio. |
For the Quarter Ended December 31, 2004 | ||||||||||||||||
Single-Family | Capital | |||||||||||||||
Credit Guaranty | HCD | Markets | Total | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Net interest income (expense)(1) | $ | 142 | $ | (37 | ) | $ | 4,078 | $ | 4,183 | |||||||
Guaranty fee income (expense)(2) | 1,127 | 104 | (312 | ) | 919 | |||||||||||
Investment gains (losses), net | 15 | — | (271 | ) | (256 | ) | ||||||||||
Derivatives fair value losses, net | — | — | (943 | ) | (943 | ) | ||||||||||
Debt extinguishment losses, net | — | — | (46 | ) | (46 | ) | ||||||||||
Losses from partnership investments | — | (203 | ) | — | (203 | ) | ||||||||||
Fee and other income (expense) | 53 | 105 | (326 | ) | (168 | ) | ||||||||||
Provision for credit losses | (201 | ) | (18 | ) | — | (219 | ) | |||||||||
Other expenses | (360 | ) | (132 | ) | (486 | ) | (978 | ) | ||||||||
Income (loss) before federal income taxes and extraordinary gains (losses) | 776 | (181 | ) | 1,694 | 2,289 | |||||||||||
Provision (benefit) for federal income taxes | 297 | (238 | ) | 651 | 710 | |||||||||||
Income before extraordinary gains (losses) | 479 | 57 | 1,043 | 1,579 | ||||||||||||
Extraordinary gain, net of tax effect | — | — | 3 | 3 | ||||||||||||
Net income | $ | 479 | $ | 57 | $ | 1,046 | $ | 1,582 | ||||||||
(1) | Includes cost of capital charge. | |
(2) | Includes intercompany guaranty fee revenue (expense) of $260 million allocated to Single-Family Credit Guaranty and HCD from Capital Markets for absorbing the credit risk on mortgage loans and Fannie Mae MBS held in our portfolio. |
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22. | Subsequent Events |
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