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| Fannie Mae Reports Record 2001 Financial Results
Operating Net Income of $5.367 Billion up 20.7 Percent over 2000
Operating Earnings Per Diluted Common Share of $5.20 up 21.2 Percent. Results Include Contribution of $300 Million in Common Stock to Fannie
WASHINGTON, Jan. 14 /PRNewswire-FirstCall/ -- Fannie Mae (NYSE: FNM), the nation's largest source of financing for home mortgages, today reported operating net income for 2001 of $5.367 billion, or $5.20 per diluted common share. Operating net income was 20.7 percent above 2000, while operating earnings per diluted common share rose 21.2 percent over the same period. For the fourth quarter of 2001 Fannie Mae's operating net income was $1.438 billion, or $1.40 per diluted common share, compared with $1.164 billion, or $1.12 per diluted common share, for the fourth quarter of 2000. The company's fourth quarter and full-year 2001 results include a commitment to contribute $300 million of Fannie Mae common stock to the Fannie Mae Foundation. |
Fourth Quarter Full Year
2001 2000 Change 2001 2000 Change
Operating Net
Income (in billions) $1.438 $1.164 23.5% $5.367 $4.448 20.7%
Operating
EPS (in dollars) $1.40 $1.12 25.0% $5.20 $4.29 21.2%
| Operating net income and operating earnings per common share exclude the variability in the market value of purchased options and the one-time cumulative change in accounting principle which resulted from the implementation of Financial Accounting Standard 133 (FAS 133) on January 1, 2001. Net income and earnings per share (EPS) for 2001 including FAS 133 items were $5.894 billion and $5.72, respectively. Net income and EPS for the fourth quarter of 2001, including FAS 133 market value changes, were $1.969 billion and $1.92, respectively. Page one of the charts with this release provides a reconciliation of operating net income and net income.
2001 Financial Performance Summary
Highlights of Fannie Mae's 2001 financial performance include:
- Book of business growth of 19.0 percent versus 9.3 percent in 2000.
- Taxable-equivalent revenue growth of 30.2 percent compared with 12.2 percent in 2000.
- Growth in guarantee fee income of 9.7 percent versus 5.4 percent in 2000.
- Growth in adjusted net interest income of 32.2 percent versus 15.9 percent in 2000.
- Average net interest margin of 1.11 percent compared with 1.01 percent in 2000.
- Credit-related losses of $81.3 million compared with $89.1 million in 2000.
- After-tax losses of $340.5 million ($523.9 million pre-tax) from the call and repurchase of debt, compared with after-tax gains of $31.5 million ($48.5 million pre-tax) in 2000.
Franklin D. Raines, Fannie Mae's Chairman and Chief Executive Officer, said, "This was an extraordinary year for Fannie Mae in every respect. The company achieved 21 percent growth in operating earnings per share, greatly exceeding consensus expectations of 14 percent earnings growth at the beginning of the year. Very high levels of mortgage activity enabled us to increase our book of business by 19 percent, the fastest in nine years. Our net interest margin rose 10 basis points, and our credit losses continued to fall in spite of the onset of recession last March. With growth in our taxable-equivalent revenues exceeding 30 percent, we were able to make a $300 million stock contribution to the Fannie Mae Foundation, conduct repurchases of high-cost debt, and launch a significant upgrading of our technology infrastructure -- all of which will enhance our financial performance in the future."
Raines noted that the contribution to the Fannie Mae Foundation in the fourth quarter of 2001 would reduce the Foundation's need for company contributions over the next several years. In addition, Raines said, by making the contribution in Fannie Mae shares at a time the company believes the shares to be substantially undervalued, any future Foundation contributions should be reduced even further as the shares appreciate. Raines said the company expects to acquire the shares it will contribute to the Foundation through open market purchases by the end of the first quarter of 2002.
Outlook
Raines said that the company's exceptional financial performance was likely to continue in 2002. "We expect growth in Fannie Mae's operating earnings per share in 2002 to again be significantly above the very positive long-term EPS trend we anticipate for the company," said Raines. Raines noted that the long-term trend for Fannie Mae's earnings would be built upon growth in the residential mortgage market. Raines said the company anticipates that growth in residential mortgage debt outstanding -- which averaged 7 percent per year during the decade of the 1990s -- will average between 8 and 10 percent per year during the current decade. Raines added that over this period Fannie Mae expects to continue to grow both its book of business and its earnings at rates that exceed the growth in mortgage debt.
Raines said that Fannie Mae's financial performance in 2001 and prospects for 2002 make it very likely that the company would achieve the goal it set in May 1999 of doubling its earnings per share between 1998 and 2003. "At the time we set this goal," said Raines, "few expected us to attain it. Not only are we very likely to, we will do so without increasing our risk profile, and with unwavering focus on our housing mission."
Fannie Mae's Executive Vice President and Chief Financial Officer, Timothy Howard, said that Fannie Mae's above-trend earnings prospects for 2002 stem from a variety of factors. Howard said that the recent sharp rebound in long- term interest rates was likely to significantly lower the volume of mortgage liquidations over the course of the first half of the year. This would mean, said Howard, that the company's net interest margin -- which had benefited from the call and refunding of a large volume of debt during 2001 -- would likely be at elevated levels for a longer period of time than previously anticipated.
Howard added that Fannie Mae's very high levels of business activity during the second half of 2001 would have beneficial carryover effects in the current year. Howard noted that the company ended 2001 with $55 billion in outstanding commitments to purchase mortgages, compared with $16 billion in outstanding commitments at December 31, 2000. As this $39 billion in additional commitments settle, Howard said, it will add over five percentage points to portfolio growth in 2002. Howard also said that Fannie Mae's mortgage-backed security (MBS) outstandings on January 1, 2002 were 10 percent above the average MBS balance for 2001. Said Howard, "If average guaranty fee rates simply remain stable this year, the company will not need to add any additional MBS balances to produce double-digit growth in guaranty fee income in 2002."
Howard said that while credit losses may rise somewhat in the aftermath of the recession, they are likely to remain low in 2002. Howard noted that the company's book of business is backed by homes with average equity exceeding 40 percent of market value. In addition, Howard said, 35 percent of the mortgages the company owns or guarantees benefit from some form of third-party credit enhancement. Howard added that Fannie Mae's taxable equivalent revenues of $10.2 billion during 2001 were well over one hundred times the $81.3 million in credit-related losses the company recorded during the same period. "Even were Fannie Mae's credit losses to double this year -- which is highly unlikely -- it would take less than one percentage point off the company's 2002 EPS growth," said Howard.
Finally, Howard said that Fannie Mae's administrative expenses in 2002 were likely to grow at a mid- to high-teens rate due to an initiative begun last year to upgrade the company's operating infrastructure. "This important technology initiative will significantly enhance Fannie Mae's transaction processing, product development and risk management efficiencies, and increase the company's ability to meet the needs of its customers," said Howard. Howard added that the company's guidance for 2002 EPS growth fully reflected the impact of higher-than-normal administrative costs related to this technology project.
"Fannie Mae had an exceptional year in 2001, and we are poised for another exceptional year in 2002," said Howard.
Details of Fannie Mae's 2001 financial performance follow:
Business Volume
Fannie Mae's business volume -- mortgages purchased for portfolio plus mortgage-backed security (MBS) issues acquired by other investors -- totaled $615.3 billion in 2001, a 137 percent increase compared with 2000. Business volume in 2001 consisted of $270.6 billion in portfolio purchases and $344.7 billion in MBS issues acquired by investors other than Fannie Mae's portfolio, compared with $154.2 billion and $105.4 billion, respectively, in 2000. Retained commitments to purchase mortgages were $296.5 billion in 2001 compared with $151.9 billion in 2000. Business volume in the fourth quarter of 2001 was $185.2 billion compared with $80.0 billion in the fourth quarter of 2000.
Fannie Mae's combined book of business -- the net mortgage portfolio and outstanding MBS held by investors other than Fannie Mae's portfolio -- grew at a compound annual rate of 19.0 percent during 2001, ending the period at $1.564 trillion. This growth was fueled by a 16.1 percent annualized growth rate in the net mortgage portfolio to $705.2 billion and a 21.5 percent rate of growth in outstanding MBS to $858.9 billion at December 31, 2001. For the fourth quarter of 2001 the combined book of business grew at an annual rate of 17.1 percent compared with 13.8 percent in the comparable time period in 2000.
Portfolio Investment Business Results
Fannie Mae's portfolio investment business manages the interest rate risk of the company's mortgage portfolio and other investments. The results of this business are largely reflected in adjusted net interest income, which is net interest income less the amortization of purchased options expense. Adjusted net interest income for 2001 was $7.500 billion, up 32.2 percent from $5.674 billion in 2000. This increase was driven by an 18.5 percent rise in the average net investment balance and a 10 basis point increase in the average net interest margin. Adjusted net interest income was $2.165 billion in the fourth quarter of 2001, or 45.8 percent above the fourth quarter of 2000.
Fannie Mae's net investment balance -- consisting of the net mortgage portfolio and the company's liquid investments -- averaged $717 billion during 2001 compared with $605 billion during 2000. The net investment balance was $781 billion at December 31, 2001.
The company's net interest margin averaged 111 basis points in 2001, up from 101 basis points in 2000. The net interest margin averaged 121 basis points in the fourth quarter of 2001 compared with 99 basis points in the fourth quarter of 2000 and 110 basis points in the third quarter of 2001. Fannie Mae's net interest margin benefited from this year's sharp declines in short-term interest rates, which enabled the company to call debt early in the year in amounts that substantially exceeded the timing and volume of mortgage liquidations. Much of this debt was reissued with short-term maturities in anticipation of a subsequent rise in mortgage repayments. Although most of Fannie Mae's short-term or variable-rate debt has some form of protection against a rise in interest rates, the company's interest costs declined as interest rates fell, and its net interest margin rose as a result. Fannie Mae's interest margin also benefited from attractive spreads on new mortgage purchases during 2001.
Fannie Mae's net mortgage portfolio grew at an annual rate of 16.1 percent during 2001, ending the year at $705 billion. For the fourth quarter of 2001 the mortgage portfolio grew at an 11.1 percent annualized rate compared with a 27.7 percent rate in the fourth quarter of 2000 and a 15.2 percent rate during the third quarter of 2001. During the second half of the year an unusually large number of portfolio commitments were made for settlement a number of months forward. As a result, portfolio growth in 2001 was lower than normally would have been the case given the volume of commitments, while portfolio growth in 2002 will be correspondingly higher.
For the full year 2001 the company realized net losses from debt repurchases and debt calls of $523.9 million ($340.5 million after tax), compared with net gains of $48.5 million ($31.5 million after tax) in 2000. During the year the company realized losses on debt repurchases of $405.5 million ($263.5 million after tax) and losses on debt calls of $118.4 million ($77.0 million after tax). For the fourth quarter of 2001 the company had realized losses on debt repurchases of $70.3 million ($45.7 million after tax) and losses on debt calls of $20.9 million ($13.5 million after tax).
Credit Guaranty Business Results
Fannie Mae's credit guaranty business manages the company's credit risk. The results of this business are primarily reflected in guaranty fee income and credit-related losses. Guaranty fee income was $1.482 billion in 2001, a 9.7 percent increase compared with 2000. Guaranty fee income was driven by a 12.3 percent rise in average outstanding MBS, partially offset by a decline in the average effective guaranty fee rate compared with the previous year. The effective guaranty fee rate in 2001 was 19.0 basis points compared with 19.5 basis points in 2000. Guaranty fee income for the fourth quarter of 2001 was $398.3 million compared with $339.3 million in the fourth quarter of 2000. The effective guaranty fee rate in the fourth quarter of 2001 was 18.9 basis points compared with 19.3 basis points in the fourth quarter of 2000
Credit-related losses -- foreclosed property expense plus charge-off recoveries -- improved despite the slowing economy, totaling $81.3 million compared with $89.1 million in 2000. Foreclosed property expense was $192.7 million in 2001 compared with $214.0 million in 2000. Charge-off recoveries were $111.4 million in 2001 compared with $124.9 million in 2000. Fannie Mae's credit loss rate -- credit-related losses as a percentage of the average combined book of business -- was 0.6 basis points in 2001 compared with 0.7 basis points in 2000. Credit-related losses were $17.5 million in the fourth quarter of 2001 compared with $23.0 million in the fourth quarter of 2000. Foreclosed property expense was $45.8 million in the fourth quarter of 2001 compared with $51.1 million in the fourth quarter of 2000. Charge-off recoveries were $28.3 million in the fourth quarter of 2001 compared with $28.1 million in the fourth quarter of 2000. For the fourth quarter of 2001, the credit loss rate was 0.5 basis points compared with 0.7 basis points in the year-ago quarter.
Credit-related expense, which includes foreclosed property expense and the provision for losses and is the amount recorded on the company's income statement, totaled $77.7 million in 2001, in line with credit-related losses. Fannie Mae's loss provision was a negative $115.0 million in 2001 compared with a negative $120.0 million in 2000. In the fourth quarter of 2001, credit-related expense totaled $15.8 million compared with $21.1 million in the fourth quarter of 2000. Fannie Mae's loss provision was a negative $30.0 million in the fourth quarter of 2001, unchanged from the fourth quarter of 2000. The company's allowance for loan losses stood at $806 million at December 31, 2001 compared with $809 million at December 31, 2000.
Fee and other income
Fee and other income in 2001 totaled $151.0 million compared with a negative $43.5 million in 2000. The change between 2001 and 2000 resulted primarily from increases in volume-related technology and transaction fees and the absence of a hedging loss. Fee and other income in the fourth quarter of 2001 totaled $50.2 million compared with $0.8 million in the same period last year.
Fee and other income includes technology fees, transaction fees, multifamily fees and other miscellaneous items, and is net of operating losses from certain tax-advantaged investments -- primarily investments in affordable housing which qualify for the low income housing tax credit. Tax credits associated with these investments are recorded in the federal income tax line.
Efficiency
Administrative expenses totaled $1.018 billion in 2001, up 12.4 percent from 2000. Expenses in 2001 included a $10 million contribution to the September 11 disaster relief effort and incremental costs related to a multi- year investment in the company's core infrastructure systems. In 2001, the company launched a major modernization of its core technology infrastructure designed to enhance its ability to process and manage the risk on mortgage assets.
The company's ratio of administrative expense to the average combined book of business in 2001 was .071 percent compared with .072 percent in 2000. Fannie Mae's efficiency ratio -- administrative expense divided by taxable- equivalent revenue -- was 10.0 percent in 2001 compared with 11.6 percent in 2000. Administrative expenses totaled $251.3 million in the fourth quarter 2001, up 8.4 percent from the fourth quarter of 2000.
Capital
Fannie Mae's core capital was $25.2 billion at December 31, 2001 compared with $23.8 billion at September 30, 2001 and $20.8 billion at December 31, 2000.
The company repurchased 6.0 million shares of common stock during 2001 compared with 25.2 million shares in 2000. The company repurchased 3.3 million shares in the fourth quarter of 2001. Fannie Mae had 997.2 million shares of common stock outstanding as of December 31, 2001 compared with 998.8 million shares as of December 31, 2000. The company issued $400 million of preferred stock and called $375 million of preferred stock in 2001. At December 31, 2001 preferred stock made up 9.1 percent of Fannie Mae's core capital.
The company issued $5.0 billion of subordinated debt during 2001. Subordinated debt serves as an important supplement to Fannie Mae's equity capital, although it is not a component of core capital. Earlier this year Fannie Mae announced that by the end of 2003 it would issue sufficient subordinated debt to bring the sum of total capital and outstanding subordinated debt to at least 4 percent of on-balance-sheet assets, after providing adequate capital to support off-balance sheet MBS. On this basis Fannie Mae's capital and outstanding subordinated debt, as a percent of on- balance sheet assets was 3.4 percent at December 31, 2001.
Voluntary Disclosures
As part of Fannie Mae's voluntary market discipline, liquidity and safety and soundness initiatives of October 2000, the company now discloses on a quarterly basis its liquid assets as a percent of total assets, the sensitivity of its future credit losses to an immediate 5 percent decline in home prices, and whether it has passed or failed an internal interim version of the risk-based capital stress test based on its interpretation of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992.
At December 31, 2001 Fannie Mae's ratio of liquid assets to total assets was 9.5 percent, compared with 7.8 percent at September 30, 2001. The company has committed to maintain a portfolio of high-quality, liquid, non-mortgage securities equal to at least 5 percent of total assets.
At September 30, 2001 the present value of Fannie Mae's net sensitivity of future credit losses to an immediate 5 percent decline in home prices was $467 million, taking into account the beneficial effect of third-party credit enhancements. This compares with $332 million at June 30, 2001. The September 30 figure reflects a gross credit loss sensitivity of $1,349 million before the effect of credit enhancements, and is net of projected credit risk sharing proceeds of $882 million.
At both September 30, 2001 and June 30, 2001, the company passed its internal interim risk-based capital test with a capital cushion that exceeded 30 percent of total capital. The company intends to manage its risks so that the cushion between total capital and internally calculated risk-based capital is at least 10 percent of total capital.
Fannie Mae's quarterly disclosures, together with the monthly interest rate risk disclosures, are included with the company's Monthly Summary statistics. For more information about Fannie Mae's voluntary disclosures, please refer to our Web site at http://www.fanniemae.com .
FAS 133
During 2001 Fannie Mae adopted Financial Accounting Standard No. 133 (FAS 133), Accounting for Derivative Instruments and Hedging Activities. FAS 133 resulted in changes to accounting presentations on both the company's income statement and balance sheet.
FAS 133 requires that Fannie Mae mark to market on its income statement the changes in the time value of its purchased options. FAS 133 requires that only the company's purchased options be marked to market, but none of its option-based debt or mortgage investments. The change in the time value of Fannie Mae's purchased options during 2001 was a net loss of $37.4 million. This amount includes $590.1 million in option cost amortization expense that formerly was included in net interest income and is currently included in adjusted net interest income. The company recorded a cumulative gain of $258.3 million, or $167.9 million after tax upon adoption of FAS 133 on January 1, 2001.
At December 31, 2001 the notional balance of Fannie Mae's purchased options -- consisting of pay-fixed interest rate swaptions, receive-fixed interest rate swaptions, and interest rate caps -- totaled $219.9 billion. At December 31, 2000 the notional balance of Fannie Mae's purchased options was $82.5 billion.
FAS 133 also requires that the company record any change in the fair values of certain derivatives, primarily interest rate swaps it uses as substitutes for non-callable debt, on the balance sheet in a separate component of stockholders' equity called other comprehensive income, or OCI. FAS 133 does not require non-callable debt to be marked to market. At December 31, 2001, the OCI component of stockholders' equity included a $7.4 billion reduction, or 1.0 percent of the net mortgage balance, from the marking to market of derivatives. The comparable reductions to OCI were $10.6 billion at September 30, 2001 and $3.7 billion at June 30, 2001. Other comprehensive income is not a component of core capital.
At December 31, 2001 Fannie Mae had $281.8 billion in interest rate swaps that were marked to market through other comprehensive income. The company had $202.5 billion in comparable derivatives at December 31, 2000.
Conference Call
Fannie Mae will host a conference call to discuss its 2001 results and the outlook for 2002 on Monday, January 14, 2002 at 4:00 p.m. EST. Fannie Mae will provide an audio webcast of the conference call, which interested parties can access from Fannie Mae's Web site. A replay of the conference call will be available on Fannie Mae's Web site for two weeks starting January 14, 2002 at 7:00 p.m. EST.
Glossary of Business Terms
Net Mortgage Portfolio - Unpaid principal balance of mortgages held in portfolio, less unamortized purchase premium or discount and deferred price adjustments and allowance for loan losses.
Net Investment Balance - The sum of Fannie Mae's net mortgage portfolio and other liquid investments (including float).
Outstanding MBS - Mortgage-backed securities (MBS) held by investors other than Fannie Mae's mortgage portfolio. (Formerly referred to as net MBS outstanding).
Combined Book of Business - The net mortgage portfolio plus outstanding MBS. Also referred to as the book of business. (Formerly referred to as total book of business).
MBS Issues Acquired by Other Investors - Lender-originated MBS issues less MBS purchased by Fannie Mae's mortgage portfolio. Also referred to as MBS issues. (Formerly referred to as net MBS issues). Does not include Fannie Mae-originated MBS, which generally are immaterial and disclosed in a footnote.
Business Volume - Mortgages purchased for portfolio plus MBS issues acquired by other investors.
Amortization Cost of Purchased Options - Purchased options expense less the change in the market value of purchased options.
Adjusted Net Interest Income - Net interest income and the amortization cost of purchased options (Comparable to net interest income pre-FAS 133).
Taxable Equivalent Revenue - The sum of net interest income, the amortization cost of purchased options, guaranty fee income and fee and other income, together with a taxable-equivalency adjustment for tax-exempt income and investment credits (principally mortgage revenue bonds and low income housing tax credit investments).
Net interest margin - Taxable-equivalent net interest income plus the amortization cost of purchased options, divided by the average net investment balance. (Adding the amortization cost of purchased options, which prior to FAS 133 had been included in net interest income, keeps the net interest margin consistent pre- and post-FAS 133).
Efficiency Ratio - Administrative expense divided by taxable-equivalent revenue.
Core Capital - Total stockholders' equity excluding other comprehensive income (OCI).
Realized Common Equity - Total stockholders' equity excluding preferred stock and OCI. Realized common equity is used in calculating return on equity. |
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Fannie Mae
Selected Financial Information
(Dollars in millions, except per share amounts)
Quarter Ended
Income Statement: 12/31/2001 9/30/2001 6/30/2001 3/31/2001 12/31/2000
Net interest income $2,404.3 $2,079.1 $1,899.4 $1,707.3 $1,485.5
Guaranty fee income 398.3 383.9 357.1 343.1 339.3
Fee and other
income (expense) 50.2 49.0 24.5 27.3 0.8
Provision for
losses 30.0 30.0 30.0 25.0 30.0
Foreclosed property
expenses (45.8) (45.1) (47.4) (54.4) (51.1)
Administrative
expenses (251.3) (272.4) (254.4) (239.5) (231.9)
Special
contribution (300.0) - - - -
Purchased options
income (expense) 577.9 (413.1) 35.4 (237.6) -
Income before taxes
and extraordinary
items 2,863.6 1,811.4 2,044.6 1,571.2 1,572.6
Federal income
taxes (835.6) (447.4) (549.7) (391.4) (405.9)
Extraordinary gain
(loss), net of tax
- early
extinguishment of
debt (59.2) (134.5) (92.5) (54.3) (2.5)
Cumulative effect
of change in
accounting
principle - - - 167.9 -
Net income $1,968.8 $1,229.5 $1,402.4 $1,293.4 $1,164.2
Preferred stock
dividends (35.0) (35.0) (34.7) (33.3) (35.2)
Operating net
income (1) $1,437.8 $1,376.5 $1,314.2 $1,238.4 $1,164.2
Total taxable-
equivalent
revenue (2) 2,871.2 2,591.4 2,448.4 2,275.6 2,052.2
Taxable-equivalent
revenue growth 39.9% 30.6% 29.1% 20.3% 12.9%
Effective tax rate
on operating
income 26% 25% 26% 25% 26%
Operating earnings
per diluted common
share (1) $1.40 $1.33 $1.27 $1.20 $1.12
Earnings per
diluted common
share 1.92 1.19 1.36 1.25 1.12
Cash dividends per
share .30 .30 .30 .30 .28
Diluted average
shares (in
millions) 1,005.2 1,006.9 1,006.7 1,006.3 1,005.4
Operating return on
realized common
equity (ROE) (3) 25.3% 25.5% 25.5% 25.4% 25.1%
Reconciliation of
net income to
operating net
income
Net income $1,968.8 $1,229.5 $1,402.4 $1,293.4 $1,164.2
Purchased options
(income) expense (577.9) 413.1 (35.4) 237.6 -
Purchased options
amortization
expense (239.0) (186.9) (100.1) (64.1) -
Net purchased
options adjustment (816.9) 226.2 (135.5) 173.5 -
Federal income
taxes on purchased
options 285.9 (79.2) 47.3 (60.6) -
Cumulative effect
of change in
accounting
principle, net of
tax - - - (167.9) -
Operating net
income (1) $1,437.8 $1,376.5 $1,314.2 $1,238.4 $1,164.2
Preferred stock
dividends (35.0) (35.0) (34.7) (33.3) (35.2)
(1) Excludes the cumulative effect of change in accounting principle upon
adoption of SFAS 133 and the change in market value of purchased
options. Includes the amortization expense of option premiums.
(2) Includes revenues net of operating losses and amortization expense of
option premiums, plus taxable-equivalent adjustments for tax-exempt
income and investment credits using the applicable federal income tax
rate.
(3) Annualized operating income divided by average realized common
stockholders' equity (common stockholders' equity excluding other
comprehensive income).
Fannie Mae
Selected Financial Information
(Dollars in millions, except per share amounts)
Twelve Months Ended December 31,
Income Statement: 2001 2000
Net interest income $8,090.1 $5,673.9
Guaranty fee income 1,482.4 1,351.3
Fee and other income (expense) 151.0 (43.5)
Provision for losses 115.0 120.0
Foreclosed property expenses (192.7) (214.0)
Administrative expenses (1,017.6) (905.2)
Special contribution (300.0) -
Purchased options income (expense) (37.4) -
Income before taxes and
extraordinary items 8,290.8 5,982.5
Federal income taxes (2,224.1) (1,566.4)
Extraordinary gain (loss), net of
tax - early extinguishment of debt (340.5) 31.5
Cumulative effect of change in
accounting principle 167.9 -
Net income $5,894.1 $4,447.6
Preferred stock dividends (138.0) (120.8)
Operating net income (1) $5,366.9 $4,447.6
Total taxable-equivalent
revenue (2) 10,186.6 7,825.1
Taxable-equivalent revenue growth 30.2% 12.2%
Effective tax rate on operating
income 26% 26%
Operating earnings per diluted
common share (1) $5.20 $4.29
Earnings per diluted common share 5.72 4.29
Cash dividends per share 1.20 1.12
Diluted average shares (in
millions) 1,006.3 1,009.2
Operating return on realized common
equity (ROE) (3) 25.4% 25.2%
Reconciliation of net income to
operating net income
Net income $5,894.1 $4,447.6
Purchased options (income) expense 37.4 -
Purchased options amortization
expense (590.1) -
Net purchased options adjustment (552.7) -
Federal income taxes on purchased
options 193.4 -
Cumulative effect of change in
accounting principle, net of tax (167.9) -
Operating net income (1) $5,366.9 $4,447.6
Preferred stock dividends (138.0) (120.8)
(1) Excludes the cumulative effect of change in accounting principle upon
adoption of SFAS 133 and the change in market value of purchased
options. Includes the amortization expense of option premiums.
(2) Includes revenues net of operating losses and amortization expense of
option premiums, plus taxable-equivalent adjustments for tax-exempt
income and investment credits using the applicable federal income tax
rate.
(3) Annualized operating income divided by average realized common
stockholders' equity (common stockholders' equity excluding other
comprehensive income).
Fannie Mae
Selected Financial Information
(Dollars in millions)
Quarter Ended
Other Data: 12/31/2001 09/30/2001 06/30/2001
Mortgage portfolio:
Retained commitments $100,485 $54,079 $65,592
Mortgage purchases 82,378 64,209 65,270
Mortgage liquidations 60,074 39,835 41,560
Mortgage sales 4,406 602 1,397
Mortgage portfolio growth rate
(compounded) 11.1% 15.2% 14.6%
Mortgage-Backed Securities:
MBS issues acquired by others $102,854 $94,596 $100,439
Outstanding MBS liquidations 65,117 52,050 53,355
Outstanding MBS (1) 858,867 816,724 773,836
Outstanding MBS growth rate
(compounded) 22.3% 24.1% 29.3%
Average effective MBS guaranty fee
rate (bp) 18.9 19.2 18.9
Book-of-Business:
Business volume $185,232 $158,805 $165,709
Book of business 1,564,034 1,503,525 1,436,834
Book of business growth rate
(compounded) 17.1% 19.9% 22.3%
Expense Ratios:
Ratio of administrative expense to
average book-of-business 0.066% 0.074% 0.073%
Efficiency ratio (2) 8.8% 10.5% 10.4%
Credit-related:
Single-family properties acquired 3,892 3,435 3,566
Single-family serious delinquency
rate at period end 0.47% (3) 0.45% 0.43%
Multifamily serious delinquency
rate at period end 0.33% (3) 0.10% 0.07%
Charge-offs (Recoveries):
Single-family $(29.0) $(26.2) $(31.2)
Multifamily 0.7 (0.2) 0.0
Total (28.3) (26.4) (31.2)
Foreclosed property expenses:
Single-family 43.7 43.3 46.9
Multifamily 2.1 1.8 0.5
Total 45.8 45.1 47.4
Credit-related losses 17.5 18.7 16.2
Allowance for losses 805.7 807.4 811.0
Provision for losses (30.0) (30.0) (30.0)
Credit-related expenses 15.8 15.1 17.4
Credit-related losses as a
percentage
of average net portfolio and net
MBS (annualized) 0.005% 0.005% 0.005%
(1) MBS held by investors other than Fannie Mae's portfolio.
(2) Administrative expense divided by taxable-equivalent revenue.
(3) As of November 30, 2001, most recent data available.
Fannie Mae
Selected Financial Information
(Dollars in millions)
Twelve
Months Ended
Quarter Ended December 31,
Other Data: 03/31/2001 12/31/2000 2001 2000
Mortgage portfolio:
Retained commitments $76,342 $50,462 $296,498 $151,903
Mortgage purchases 58,727 52,959 270,584 154,231
Mortgage liquidations 22,943 15,642 164,412 57,233
Mortgage sales 2,576 1,328 8,981 10,982
Mortgage portfolio
growth rate
(compounded) 23.8% 27.7% 16.1% 16.2%
Mortgage-Backed
Securities:
MBS issues acquired by
others $46,850 $27,034 $344,739 $105,407
Outstanding MBS
liquidations 30,018 22,676 200,540 88,149
Outstanding MBS (1) 725,685 706,684 858,867 706,684
Outstanding MBS growth
rate (compounded) 11.2% 3.3% 21.5% 4.1%
Average effective MBS
guaranty fee rate (bp) 19.1 19.3 19.0 19.5
Book-of-Business:
Business volume $105,577 $79,993 $615,323 $259,638
Book of business 1,366,419 1,314,083 1,564,034 1,314,083
Book of business growth
rate (compounded) 16.9% 13.8% 19.0% 9.3%
Expense Ratios:
Ratio of administrative
expense to average
book-of-business 0.072% 0.072% 0.071% 0.072%
Efficiency ratio (2) 10.5% 11.3% 10.0% 11.6%
Credit-related:
Single-family properties
acquired 3,593 3,398 14,486 14,351
Single-family serious
delinquency rate at
period end 0.44% 0.45% 0.47% (3) 0.45%
Multifamily serious
delinquency rate at
period end 0.05% 0.05% 0.33% (3) 0.05%
Charge-offs
(Recoveries):
Single-family $(25.6) $(28.1) $(112.0) $(126.8)
Multifamily 0.1 0.0 0.6 1.9
Total (25.5) (28.1) (111.4) (124.9)
Foreclosed property
expenses:
Single-family 54.5 49.7 188.4 212.6
Multifamily (0.1) 1.4 4.3 1.4
Total 54.4 51.1 192.7 214.0
Credit-related losses 28.9 23.0 81.3 89.1
Allowance for losses 809.8 809.3 805.7 809.3
Provision for losses (25.0) (30.0) (115.0) (120.0)
Credit-related expenses 29.4 21.1 77.7 94.0
Credit-related losses as
a percentage
of average net
portfolio and net MBS
(annualized) 0.009% 0.007% 0.006% 0.007%
(1) MBS held by investors other than Fannie Mae's portfolio.
(2) Administrative expense divided by taxable-equivalent revenue.
(3) As of November 30, 2001, most recent data available.
Fannie Mae
Selected Financial Information
(Dollars in millions, except per share amounts)
Quarter Ended
12/31/2001 9/30/2001 6/30/2001 3/31/2001 12/31/2000
Net Interest Margin:
Average balances:
Net mortgage
investment $689,354 $673,170 $647,493 $622,763 $587,996
Liquid investments 65,173 57,586 56,764 55,721 60,157
Total net investment $754,527 $730,756 $704,257 $678,484 $648,153
Average investment
yield, taxable-
equivalent basis 6.66% 6.87% 6.98% 7.13% 7.19%
Average borrowing
cost 5.66% 5.96% 6.12% 6.32% 6.45%
Net interest margin,
taxable-equivalent
basis 1.21% 1.10% 1.09% 1.03% .99%
Adjusted net interest
income (1) $2,165.3 $1,892.2 $1,799.3 $1,643.2 $1,485.5
Taxable-equivalent
adjustment (2) 125.6 119.7 113.7 110.7 111.5
Fee and Other Income
(Expense):
Transaction fees $49.2 $29.0 $27.2 $22.5 $20.3
Technology fees 49.6 38.7 37.7 37.3 18.9
Multifamily fees 17.2 16.6 15.1 14.0 12.2
Tax-advantaged
investments (41.5) (63.6) (60.2) (57.1) (52.6)
Other (24.3) 28.3 4.7 10.6 2.0
Total $50.2 $49.0 $24.5 $27.3 $.8
Fannie Mae
Selected Financial Information
(Dollars in millions, except per share amounts)
Twelve Months Ended December 31,
2001 2000
Net Interest Margin:
Average balances:
Net mortgage investment $658,195 $553,531
Liquid investments 58,811 51,490
Total net investment $717,006 $605,021
Average investment yield, taxable-
equivalent basis 6.90% 7.11%
Average borrowing cost 6.00% 6.35%
Net interest margin, taxable-
equivalent basis 1.11% 1.01%
Adjusted net interest income (1) $7,500.0 $5,673.9
Taxable-equivalent adjustment (2) 469.7 413.8
Fee and Other Income (Expense):
Transaction fees $127.9 $70.9
Technology fees 163.3 74.2
Multifamily fees 62.9 51.0
Tax-advantaged investments (222.4) (188.0)
Other 19.3 (51.6)
Total $151.0 $(43.5)
Fannie Mae
Selected Financial Information
Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
2001 2001 2001 2001 2000
Selected Balance Sheet
Data:
Mortgage portfolio,
net $705,167 $686,801 $662,998 $640,734 $607,399
Liquid assets 76,072 59,944 59,083 44,911 55,585
Total assets 799,791 766,650 737,151 700,977 675,072
Debentures, notes,
and bonds, net 763,467 726,992 702,334 666,592 642,682
Stockholders' Equity:
Preferred stock $2,302 $2,302 $2,302 $1,903 $2,278
Realized common
equity 22,880 21,475 20,676 19,579 18,550
Other comprehensive
income (OCI)
Unrealized gains
(losses) on
securities, net 295 635 153 303 10
Cash flow hedging
results, net (7,359) (10,634) (3,700) (5,699) -
Total accumulated OCI (7,064) (9,999) (3,547) (5,396) 10
Total stockholders'
equity $18,118 $13,778 $19,431 $16,086 $20,838
Core capital (3) $25,182 $23,778 $22,978 $21,482 $20,827
(1) Includes the amortization of purchased option premiums.
(2) Reflects pro-forma adjustments to permit comparison of yields on tax-
advantaged and taxable assets.
(3) Excludes other comprehensive income.
Fannie Mae
Voluntary Initiatives Disclosure
December 2001
INTEREST RATE RISK
Rate Level Shock (50bp) Rate Slope Shock (25bp)
1 Year 4 Year 1 Year 4 Year
Portfolio Portfolio Portfolio Portfolio
Effective Net Interest Net Interest Net Interest Net Interest
Duration Gap Income Income Income Income
(in months) at Risk at Risk at Risk at Risk
2000
1st Qtr 5 0.1% 4.3% 1.0% 3.0%
2nd Qtr 4 0.6% 4.8% 1.0% 3.0%
3rd Qtr 2 0.8% 4.3% 1.0% 3.1%
4th Qtr -3 0.5% 2.0% 3.0% 4.3%
2001
January -3 3.9% 3.6% 3.6% 5.2%
February -2 3.0% 2.1% 3.2% 5.2%
March 1 3.8% 3.2% 3.1% 4.7%
April 7 3.2% 4.9% 2.0% 2.6%
May 7 1.9% 4.5% 1.5% 2.2%
June 5 1.7% 4.4% 0.9% 2.0%
July 0 1.1% 2.9% 1.8% 3.4%
August -1 1.5% 2.1% 1.9% 3.7%
September -1 2.4% 3.6% 2.8% 4.0%
October -10 1.8% 6.9% 3.8% 6.0%
November 3 4.2% 3.8% 3.1% 5.3%
December 5 5.1% 4.5% 2.4% 4.3%
* Effective duration gap - measures the extent the effective duration of
the portfolio's assets and liabilities are matched. A positive duration
gap indicates that the effective duration of our assets exceeds the
effective duration of our liabilities by that amount, while a negative
duration gap indicates the opposite.
* Net interest income at risk - compares Fannie Mae's projected change in
portfolio net interest income under the financially more adverse of a 50
basis point increase and decrease in interest rates. Fannie Mae also
compares the expected change in portfolio net interest income for the
more adverse of a 25 basis point decrease and increase in the slope of
the yield curve. Both measurements are done for one-year and four-year
periods.
* A positive number indicates the percent by which net interest income
could be reduced by the increased rate shock. A negative number would
indicate the percent by which net interest income could be increased by
the shock.
LIQUIDITY
Ratio of liquid to total assets Ratio
December 31, 2000 8.2%
March 31, 2001 6.4%
June 30, 2001 8.0%
September 30, 2001 7.8%
December 31, 2001 9.5%
* Fannie Mae will maintain at least three months of liquidity to ensure
the company can meet all of its obligations in any period of time in
which it does not have access to the debt markets. Fannie Mae also will
comply with the Basel Committee on Banking Supervision's fourteen
principles for sound liquidity management.
* To fulfill its liquidity commitment, Fannie Mae will maintain more than
five percent of its on-balance sheet assets in high-quality, liquid,
non-mortgage securities.
CREDIT RISK
Without With
Lifetime credit loss credit credit
sensitivity as of: enhancements enhancements
December 31, 2000 $1,065 $295
March 31, 2001 $1,061 $307
June 30, 2001 $1,045 $332
September 30, 2001 /1 $1,349 $467
* Lifetime credit loss sensitivity measures the sensitivity of Fannie
Mae's expected future credit losses to an immediate five percent decline
in home values for all single-family mortgages held in Fannie Mae's
retained portfolio and underlying guaranteed MBS.
* Credit loss sensitivity is reported in present value terms and measures
expected losses in two ways: before receipt of private mortgage
insurance claims and any other credit enhancements and after receipt of
expected mortgage insurance and other credit enhancements.
RISK-BASED CAPITAL
Interim risk-based capital
stress test Pass / Fail Capital Cushion
December 31, 2000 Pass 10 % - 30 %
March 31, 2001 Pass > 30 %
June 30, 2001 Pass > 30 %
September 30, 2001 /1 Pass > 30 %
* Fannie Mae has implemented an interim version of the risk-based capital
stress test detailed in the Federal Housing Enterprise Financial Safety
and Soundness Act of 1992. The interim implementation of the risk-
based capital test was constructed using as its basis OFHEO's Notice of
Public Rulemaking 2, modified to reflect subsequent changes implemented
or suggested both by OFHEO and Fannie Mae.
* Fannie Mae will disclose whether it has passed or failed the interim
risk-based capital test at the end of each quarter, and also give an
indication of the amount by which capital exceeds or falls short of the
calculated risk-based requirement. Fannie Mae will run this interim
version only until the risk-based capital standard is adopted by its
regulator, the Office of Federal Housing Enterprise Oversight.
Forward-looking Statements
This release includes forward-looking statements based on management's estimates of trends and economic factors in the markets in which Fannie Mae is active as well as the company's business plans. Such estimates and plans may change without notice and future results may vary from expected results if there are significant changes in economic, regulatory, or legislative conditions affecting Fannie Mae or its competitors. Investors should review the most recent Information Statement dated March 30, 2001 and the Supplements dated May 15, 2001, August 14, 2001, and November 14, 2001 (available at http://www.fanniemae.com ) for a discussion of these factors.
Fannie Mae is a New York Stock Exchange company and the largest non-bank financial services company in the world. It operates pursuant to a federal charter and is the nation's largest source of financing for home mortgages. Fannie Mae is working to shrink the nation's "homeownership gaps" through a $2 trillion "American Dream Commitment" to increase homeownership rates and serve 18 million targeted American families by the end of the decade. Since 1968, Fannie Mae has provided more than $3.0 trillion of mortgage financing for more than 40 million families. More information about Fannie Mae can be found on the Internet at http://www.fanniemae.com .
Shareholder information about Fannie Mae is available 24 hours a day. Please call us toll free at 1-800-FNM-2-YOU (1-800-399-2968) or access our Web site. |
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