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Fannie Mae Reports Record First Quarter 2002 Financial Results

Operating Net Income of $1.519 Billion up 22.7 Percent over First Quarter 2001

Fannie Mae Operating Earnings Per Diluted Common Share of $1.48 up 23.3 Percent

WASHINGTON D.C. (April 15, 2002) -- Fannie Mae (FNM/NYSE), the nation's largest source of financing for home mortgages, today reported operating net income for the first quarter of 2002 of $1.519 billion, a 22.7 percent increase compared with the first quarter of 2001. Operating earnings per diluted common share (operating EPS) of $1.48 were 23.3 percent above the same period in 2001.


                                                First Quarter
2002 2001 Change
---- ---- ------
Operating Net Income (in billions) $1.519 $1.238 22.7%
Operating EPS (in dollars) $1.48 $1.20 23.3%

Operating net income and operating EPS exclude the variability inearnings from both changes in the market value of purchased options and the one-time cumulative change in accounting principle from the implementation of Financial Accounting Standard 133 (FAS 133) on January 1, 2001. Net income and EPS for the first quarter of 2002 including FAS 133 items were $1.209 billion and $1.17, respectively,compared with $1.293 billion, or $1.25 per share, in the first quarter of 2001.

Timothy Howard, Fannie Mae's Executive Vice President and ChiefFinancial Officer, said, "We believe that the income statementvolatility which results from the inclusion of unrealized gains orlosses under FAS 133 does not accurately reflect the operatingperformance of the company. Under FAS 133, operating net income is amore accurate measure of the company's performance." Under FAS 133 netincome in the first quarter of 2002 was $310.1 million less thanoperating net income. In the first quarter of 2001 net income was$55.0 million more than operating net income and in the fourth quarterof 2001 net income exceeded operating net income by $531.0 million.Page one of the attachments to this release provides a reconciliationof net income to operating net income.

Highlights of Fannie Mae's financial performance in the firstquarter 2002 compared with the first quarter of 2001 include:

  • Growth in taxable-equivalent revenues of 24.8 percent;
  • Growth in adjusted net interest income of 29.0 percent;
  • An average net interest margin of 115 basis points compared with 103 basis points;
  • Growth in guaranty fee income of 18.8 percent;
  • Credit-related losses of $21.5 million compared with $28.9 million;
  • Losses of $171.7 million from the call and repurchase of debt compared with $83.5 million; and,
  • Repurchase of 7.5 million shares of Fannie Mae common stock compared with 1.0 million shares.

Franklin D. Raines, Fannie Mae's Chairman and Chief Executive Officer, said, "Continued strong growth in top-line revenues enabled Fannie Mae to report its 57th consecutive quarterly increase in operating earnings per share during the first quarter of 2002. This is a performance record few other companies can match."

Raines said that Fannie Mae's earnings were fueled by growth in the company's combined book of business -- mortgages in portfolio plus outstanding mortgage-backed securities -- of 19.2 percent over the past 12 months. Over the first three months of 2002, Raines added, Fannie Mae's book of business increased at a 17.4 percent annual rate. Raines stated that the housing market remains unusually strong for this point in the economic cycle, with home prices having rebounded following the impact of the September 11th attacks and mortgage originations to purchase homes remaining buoyant.

Raines said that Fannie Mae's recent strong earnings growth had been accompanied by excellent management of its principal business risks. Raines said, "Fannie Mae's credit costs remain extremely low for this stage of the business cycle, we are maintaining a good match between the assets and liabilities in our portfolio, and over the past 12 months we have added $4.0 billion to our core capital." Raines noted that during the quarter Moody's Investors Service assigned Fannie Mae a bank financial strength rating of A- on a scale of A to E, putting the company among the highest rated financial institutions in America.

Outlook
Fannie Mae's Executive Vice President and Chief Financial Officer, Timothy Howard, reiterated the company's positive outlook for its financial performance. "We continue to expect that growth in Fannie Mae's operating earnings per share in 2002 will be above the very positive long-term EPS trend we anticipate for the company," said Howard. Longer term, Howard said, Fannie Mae should benefit from strong growth in residential mortgage debt, which the company expects to increase by an average of 8 to 10 percent per year during the current decade. Howard added, "Over this period we expect to continue to be able to grow both our book of business and our earnings at rates that exceed the growth in mortgage debt."

Howard noted that during the quarter the pace of commitments to purchase mortgages for portfolio fell to $50.8 billion from the record $100.5 billion in the fourth quarter of 2001. Said Howard, "With mortgage-to-debt spreads tightening we backed away from the market somewhat in February and March. We expect that we will have more attractive opportunities for portfolio commitments later in the year, and believe that portfolio growth for the full year will approximate the growth rate achieved in 2001." Howard said that with year-to-date business growth so strong and with the interest margin rising in February and March, the slower pace of portfolio commitments over the past two months would not have any discernable effect on the company's net income outlook.

Howard added that credit losses in the first quarter came in lower than expected despite the weaker economy. He said that while the company still anticipates that credit losses may increase from their totals in 2001, it expects that any such increase would be relatively small.

Details of Fannie Mae's first quarter 2002 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 $197.8 billion in the first quarter of 2002, compared with $105.6 billion in the first quarter of 2001 and $185.2 billion in the fourth quarter of 2001. Business volume in the first quarter of 2002 consisted of $91.0 billion in portfolio purchases and $106.8 billion in MBS issues acquired by investors other than Fannie Mae's portfolio, compared with $58.7 billion and $46.9 billion, respectively, in the first quarter of 2001. Retained commitments to purchase mortgages were $50.8 billion in the first quarter of 2002 compared with $76.3 billion in the first quarter of 2001.

Fannie Mae's combined book of business -- the net mortgage portfolio and outstanding MBS held by other investors - grew at a compound annual rate of 17.4 percent during the first quarter of 2002, ending the period at $1.628 trillion. This growth was fueled by a 15.9 percent annualized growth rate in the net mortgage portfolio to $732 billion and an 18.7 percent rate of growth in outstanding MBS to $896 billion at March 31, 2002.

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 expense of purchased options. Adjusted net interest income for the first quarter of 2002 was $2.120 billion, up 29.0 percent from $1.643 billion in the first quarter of 2001. This increase was driven by a 15.1 percent rise in the average net investment balance and a 12 basis point increase in the average net interest margin.

Fannie Mae's net investment balance -- consisting of the net mortgage portfolio and the company's liquid investments -- averaged $781 billion during the first quarter of 2002 compared with $679 billion during the first quarter of 2001. The net investment balance was $789 billion at March 31, 2002.

The company's net interest margin averaged 115 basis points in the first quarter of 2002, compared with 103 basis points in the first quarter of 2001 and 121 basis points in the fourth quarter of 2001. During the quarter the margin was as low as 111 basis points in January, but rose to 119 basis points in March. Fannie Mae's net interest margin continues to benefit from the sharp declines in short-term interest rates in 2001, which enabled the company to call debt early in that year in amounts which substantially exceeded the timing and volume of mortgage liquidations.

Fannie Mae's net mortgage portfolio grew at an annual rate of 15.9 percent during the first quarter of 2002, ending the quarter at $732 billion. Portfolio growth fell to an annual rate of 2.4 percent in the month of March as mortgage commitments slowed due to tighter mortgage-to-debt spreads, portfolio sales increased, and liquidation rates remained high.

For the first quarter of 2002 the company realized net losses from debt repurchases and debt calls of $171.7 million ($111.6 million after tax) compared with net losses of $83.5 million ($54.3 million after tax) in the first quarter of 2001. During the quarter the company realized losses on debt repurchases of $150.0 million and losses on debt calls of $21.7 million. Fannie Mae regularly calls or repurchases debt as part of its interest rate risk management program.

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 $407.6 million in the first quarter of 2002, an 18.8 percent increase compared with the first quarter of 2001. Guaranty fee income was driven by a 22.2 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 the first quarter of 2002 was 18.6 basis points compared with 19.1 basis points in the first quarter of 2001 and 18.9 basis points in the fourth quarter of 2001.

Credit-related losses - foreclosed property expense plus charge-off recoveries - remained low in spite of the weaker economy, totaling $21.5 million compared with $28.9 million in the first quarter of 2001. Foreclosed property expense was $51.7 million in the first quarter of 2002 compared with $54.4 million in the first quarter of 2001. Charge-off recoveries were $30.2 million in the first quarter of 2002 compared with $25.5 million in the first quarter of 2001. Fannie Mae's credit loss rate - credit-related losses as a percentage of the average combined book of business -- was 0.5 basis points in the first quarter of 2002 compared with 0.9 basis points in the first quarter of 2001.

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 $21.7 million in the first quarter of 2002, in line with credit-related losses. Fannie Mae's loss provision was a negative $30.0 million in the first quarter of 2002 compared with a negative $25.0 million in the first quarter of 2001. The company's allowance for loan losses stood at $806 million at both March 31, 2002 and December 31, 2001 compared with $810 million at March 31, 2001.

Fee and other income
Fee and other income in the first quarter of 2002 totaled $3.6 million compared with $27.3 million in the first quarter of 2001. The decline from the first quarter of 2001 was primarily due to losses on sales of mortgages and an increase in credit enhancement expenses -- principally for new products with higher-than-average risk characteristics -- both of which are included in other miscellaneous items.

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 housing tax credit investments are recorded in the federal income tax line.

Efficiency
Administrative expenses totaled $290.1 million in the first quarter of 2002, up 21.1 percent from the first quarter of 2001. This above-average growth in expenses is related to Fannie Mae's reengineering of its core technology infrastructure to enhance its ability to process and manage the risk on mortgage assets. Due to this initiative, the company expects its administrative expenses to grow at a mid-to-high teens rate in 2002.

The company's ratio of administrative expense to the average combined book of business in the first quarter of 2002 was .073 percent compared with .072 percent in the first quarter of 2001. Fannie Mae's efficiency ratio -- administrative expense divided by taxable-equivalent revenue -- was 10.2 percent in the first quarter of 2002 compared with 10.5 percent in the first quarter of 2001.

Capital
Fannie Mae's core capital was $25.5 billion at March 31, 2002 compared with $25.2 billion at December 31, 2001 and $21.5 billion at March 31, 2001.

The company repurchased 7.5 million shares of common stock during the first quarter of 2002, compared with 1.0 million shares in the first quarter of 2001 and 6.0 million shares for all of 2001. First quarter 2002 repurchases included shares used to fund the company's $300 million commitment to the Fannie Mae Foundation made in the fourth quarter of 2001. At March 31, 2002 Fannie Mae had 995.5 million shares of common stock outstanding compared with 997.2 million shares at December 31, 2001. The company called $375 million of preferred stock in the first quarter of 2002. At March 31, 2002 preferred stock made up 7.6 percent of Fannie Mae's core capital.

The company issued $1.0 billion of subordinated debt during the first quarter of 2002, and had $6.0 billion of subordinated debt outstanding at March 31, 2002. Subordinated debt serves as an important supplement to Fannie Mae's equity capital, although it is not a component of core capital. After providing for capital to support its off-balance sheet MBS, Fannie Mae's capital and outstanding subordinated debt as a percent of on-balance sheet assets was 3.5 percent at March 31, 2002.

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 March 31, 2002 Fannie Mae's ratio of liquid assets to total assets was 7.1 percent, compared with 9.5 percent at December 31, 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 December 31, 2001 the present value of Fannie Mae's net sensitivity of future credit losses to an immediate 5 percent decline in home prices was $487 million, taking into account the beneficial effect of third-party credit enhancements. This compares with $467 million at September 30, 2001. The December 31st figure reflects a gross credit loss sensitivity of $1,332 million before the effect of credit enhancements, and is net of projected credit risk sharing proceeds of $845 million.

At both December 31st and September 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 which are included with the company's Monthly Summary statistics, are detailed on the fourth page of the attachments to this release. For more information about Fannie Mae's voluntary disclosures, please refer to our Web site at http://www.fanniemae.com.

Fannie Mae's primary use of derivative instruments is as a substitute for noncallable and callable debt issued in the cash markets. Fannie Mae uses derivatives to help match the cash flow characteristics of its debt with those of its mortgages to reduce the interest rate risk in its portfolio.

Fannie Mae accounts for its derivatives under Financial Accounting Standard No. 133 (FAS 133), Accounting for Derivative Instruments and Hedging Activities. The company implemented this standard, which resulted in changes to accounting presentations on both the company's income statement and balance sheet, on January 1, 2001.

FAS 133 requires that Fannie Mae mark to market on its income statement the changes in the time value of its purchased options - interest rate swaptions and interest rate caps - although it does not permit the company to mark to market its options embedded in debt or mortgage investments. The mark to market of Fannie Mae's purchased options during the first quarter of 2002 resulted in a net loss of $787.2 million compared with a net gain of $577.9 million in the fourth quarter of 2001. The large change in the time value of Fannie Mae's purchased options between the fourth quarter of 2001 and the first quarter of 2002 was primarily the result of a significant change in interest rate volatility, which affected the time value of all options. Purchased options expense in the first quarter of 2002 includes $310.2 million in amortization of the cost to purchase these options, which was included in net interest income prior to the adoption of FAS 133 and currently is included in adjusted net interest income and in operating earnings.

At March 31, 2002 the notional balance of Fannie Mae's purchased options totaled $238 billion. At December 31, 2001 the notional balance of Fannie Mae's purchased options was $220 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 noncallable debt, on the balance sheet in a separate component of stockholders' equity called accumulated other comprehensive income, or AOCI. For these types of transactions, FAS 133 does not require or permit non-callable debt to be marked to market. At March 31, 2002, the AOCI component of stockholders' equity included a $4.8 billion reduction, or 0.7 percent of the net mortgage balance, from the marking to market of these derivatives, down from $7.4 billion at December 31, 2001. Accumulated other comprehensive income is not a component of core capital.

At March 31, 2002 Fannie Mae had $290 billion in interest rate swaps that were marked to market through accumulated other comprehensive income. The company had $282 billion in comparable derivatives at December 31, 2001.

Fannie Mae's primary credit exposure on derivatives is that a counterparty might default on payments due, which could result in Fannie Mae having to replace the derivative with a different counterparty at a higher cost. Fannie Mae's exposure on derivative contracts (taking into account master settlement agreements that allow for netting of payments and excluding collateral received) was $1,033 million at March 31, 2002. All of this exposure was to counterparties rated A-/A3 or higher. Fannie Mae held $833 million of collateral through custodians for these instruments. Fannie Mae's exposure, net of collateral, was $200 million.


Fannie Mae
Selected Financial Information
(Dollars in millions,
except per share amounts)
Quarter Ended
Income Statement: 3/31/02 12/31/01 9/30/01
---------- ---------- ---------
Net interest income $ 2,430.4 $ 2,404.3 $ 2,079.1
Guaranty fee income 407.6 398.3 383.9
Fee and other income 3.6 50.2 49.0
Provision for losses 30.0 30.0 30.0
Foreclosed property
expenses (51.7) (45.8) (45.1)
Administrative expenses (290.1) (251.3) (272.4)
Special contribution - (300.0) -
Purchased options
income (expense) (787.2) 577.9 (413.1)
---------- ---------- ---------
Income before taxes and
extraordinary items 1,742.6 2,863.6 1,811.4
Federal income taxes (422.4) (835.6) (447.4)
Extraordinary loss,
net of tax -
early extinguishment
of debt (111.6) (59.2) (134.5)
Cumulative effect of
change in accounting
principle - - -
---------- ---------- ----------
Net income $ 1,208.6 $ 1,968.8 $ 1,229.5
========== ========== ==========
Preferred stock
dividends (32.8) (35.0) (35.0)
Operating net
income (1) $ 1,518.7 $ 1,437.8 $ 1,376.5
Total taxable-
equivalent revenue (2) 2,839.9 2,871.2 2,591.4
Taxable-equivalent
revenue growth 24.8% 39.9% 30.6%
Effective tax rate on
operating income 26% 26% 25%
Operating earnings
per diluted common
share (1) $ 1.48 $ 1.40 $ 1.33
Earnings per diluted
common share 1.17 1.92 1.19
Cash dividends
per share .33 .30 .30
Diluted average shares
(in millions) 1,001.7 1,005.2 1,006.9
Operating return on
realized common
equity (ROE) (3) 25.8% 25.3% 25.5%
Quarter Ended
Income Statement: 6/30/01 3/31/01
---------- ---------
Net interest income $ 1,899.4 $ 1,707.3
Guaranty fee income 357.1 343.1
Fee and other income 24.5 27.3
Provision for losses 30.0 25.0
Foreclosed property
expenses (47.4) (54.4)
Administrative expenses (254.4) (239.5)
Special contribution - -
Purchased options
income (expense) 35.4 (237.6)
---------- ----------
Income before taxes and
extraordinary items 2,044.6 1,571.2
Federal income taxes (549.7) (391.4)
Extraordinary loss,
net of tax -
early extinguishment
of debt (92.5) (54.3)
Cumulative effect of
change in accounting
principle - 167.9
---------- ----------
Net income $ 1,402.4 $ 1,293.4
========== ==========
Preferred stock
dividends (34.7) (33.3)
Operating net
income (1) $ 1,314.2 $ 1,238.4
Total taxable-
equivalent revenue (2) 2,448.4 2,275.6
Taxable-equivalent
revenue growth 29.1% 20.3%
Effective tax rate on
operating income 26% 25%
Operating earnings
per diluted common
share (1) $ 1.27 $ 1.20
Earnings per diluted
common share 1.36 1.25
Cash dividends
per share .30 .30
Diluted average shares
(in millions) 1,006.7 1,006.3
Operating return on
realized common
equity (ROE) (3) 25.5% 25.4%
Quarter Ended
3/31/02 12/31/01 9/30/01
---------- ---------- ---------
Reconciliation of net income
to operating net income
Net income $ 1,208.6 $ 1,968.8 $ 1,229.5
Purchased options
(income) expense 787.2 (577.9) 413.1
Purchased options
premium amortization
expense (310.2) (239.0) (186.9)
---------- ---------- ---------
Net purchased options
adjustment 477.0 (816.9) 226.2
Federal income taxes
on purchased options (166.9) 285.9 (79.2)
Cumulative effect of
change in accounting
principle, net of tax - - -
---------- ---------- ---------
Operating net
income (1) $ 1,518.7 $ 1,437.8 $ 1,376.5
========== ========== =========
Preferred stock
dividends (32.8) (35.0) (35.0)
Quarter Ended
6/30/01 3/31/01
---------- ---------
Net income $ 1,402.4 $ 1,293.4
Purchased options
(income) expense (35.4) 237.6
Purchased options
premium amortization
expense (100.1) (64.1)
---------- ---------
Net purchased options
adjustment (135.5) 173.5
Federal income taxes
on purchased options 47.3 (60.6)
Cumulative effect of
change in accounting
principle, net of tax - (167.9)
---------- ---------
Operating net
income (1) $ 1,314.2 $ 1,238.4
========== =========
Preferred stock
dividends (34.7) (33.3)
(1) Excludes the cumulative after-tax gain from the change in
accounting principle upon adoption of SFAS 133 and the
after-tax change in fair value of time value of purchased
options. Includes the after-tax charge for 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).
(Dollars in millions)
Quarter Ended
Other Data: 3/31/02 12/31/01 9/30/01
Mortgage portfolio:
Retained commitments $ 50,783 $ 100,485 $ 54,079
Mortgage purchases 90,946 82,378 64,209
Mortgage liquidations 60,972 60,074 39,835
Mortgage sales 3,131 4,406 602
Mortgage portfolio
growth rate (compounded) 15.9% 11.1% 15.2%
Mortgage-Backed Securities:
MBS issues acquired by others $ 106,804 $ 102,854 $ 94,596
Outstanding MBS liquidations 72,586 65,117 52,050
Outstanding MBS (1) 896,463 858,867 816,724
Outstanding MBS
growth rate (compounded) 18.7% 22.3% 24.1%
Average effective MBS
guaranty fee rate (bp) 18.6 18.9 19.2
Book-of-Business:
Business volume $ 197,750 $ 185,232 $ 158,805
Book of business 1,628,179 1,564,034 1,503,525
Book of business
growth rate (compounded) 17.4% 17.1% 19.9%
Expense Ratios:
Ratio of administrative expense
to average book-of-business 0.073% 0.066% 0.074%
Efficiency ratio (2) 10.2% 8.8% 10.5%
Quarter Ended
6/30/01 3/31/01
Other Data:
Mortgage portfolio:
Retained commitments $ 65,592 $ 76,342
Mortgage purchases 65,270 58,727
Mortgage liquidations 41,560 22,943
Mortgage sales 1,397 2,576
Mortgage portfolio
growth rate (compounded) 14.6% 23.8%
Mortgage-Backed Securities:
MBS issues acquired by others $ 100,439 $ 46,850
Outstanding MBS liquidations 53,355 30,018
Outstanding MBS (1) 773,836 725,685
Outstanding MBS
growth rate (compounded) 29.3% 11.2%
Average effective MBS
guaranty fee rate (bp) 18.9 19.1
Book-of-Business:
Business volume $ 165,709 $ 105,577
Book of business 1,436,834 1,366,419
Book of business
growth rate (compounded) 22.3% 16.9%
Expense Ratios:
Ratio of administrative expense
to average book-of-business 0.073% 0.072%
Efficiency ratio (2) 10.4% 10.5%
Quarter Ended
Other Data: 3/31/02 12/31/01 9/30/01
Credit-related:
Single-family
properties acquired 4,337 3,892 3,435
Single-family serious
delinquency rate at period end 0.48%(3) 0.49% 0.45%
Multifamily serious
delinquency rate at period end 0.32%(3) 0.32% 0.10%
Charge-offs (Recoveries):
Single-family $ (31.2) $ (29.0) $ (26.2)
Multifamily 1.0 0.7 (0.2)
Total (30.2) (28.3) (26.4)
Foreclosed property expenses:
Single-family 51.9 43.7 43.3
Multifamily (0.2) 2.1 1.8
Total 51.7 45.8 45.1
Credit-related losses 21.5 17.5 18.7
Allowance for losses 805.9 805.7 807.4
Provision for losses (30.0) (30.0) (30.0)
Credit-related expenses 21.7 15.8 15.1
Credit-related losses
as a percentage of
average net portfolio and
net MBS (annualized) 0.005% 0.005% 0.005%
Quarter Ended
Other Data: 6/30/01 3/31/01
Credit-related:
Single-family
properties acquired 3,566 3,593
Single-family serious
delinquency rate at period end 0.43% 0.44%
Multifamily serious
delinquency rate at period end 0.07% 0.05%
Charge-offs (Recoveries):
Single-family $(31.2) $ (25.6)
Multifamily 0.0 0.1
Total (31.2) (25.5)
Foreclosed property expenses:
Single-family 46.9 54.5
Multifamily 0.5 (0.1)
Total 47.4 54.4
Credit-related losses 16.2 28.9
Allowance for losses 811.0 809.8
Provision for losses (30.0) (25.0)
Credit-related expenses 17.4 29.4
Credit-related losses
as a percentage of
average net portfolio and
net MBS (annualized) 0.005% 0.009%
(1) MBS held by investors other than Fannie Mae's portfolio.
(2) Administrative expense divided by taxable-equivalent revenue.
(3) As of February 28, 2002, most recent data available.
Fannie Mae
Selected Financial Information
(Dollars in millions, except per share amounts)
Quarter Ended
--------------------------------------
3/31/02 12/31/01 9/30/01
--------------------------------------
Net Interest Margin:
Average balances:
Net mortgage investment $ 715,604 $ 689,354 $ 673,170
Liquid investments 65,165 65,173 57,586
----------- ----------- ----------
Total net investment $ 780,769 $ 754,527 $ 730,756
=========== =========== ==========
Average investment yield,
taxable-equivalent basis 6.49% 6.66% 6.87%
Average borrowing cost 5.52% 5.66% 5.96%
Net interest margin,
taxable-equivalent basis 1.15% 1.21% 1.10%
Adjusted net interest
income (1) $ 2,120.2 $ 2,165.3 $ 1,892.2
Taxable-equivalent
adjustment (2) 123.2 125.6 119.7
Quarter Ended
-------------------------------
6/30/01 3/31/01
--------------- -----------
Net Interest Margin:
Average balances:
Net mortgage investment $ $ 647,493 $ 622,763
Liquid investments 56,764 55,721
--------------- -----------
Total net investment $ $ 704,257 $ 678,484
=============== ===========
Average investment yield,
taxable-equivalent basis 6.98% 7.13%
Average borrowing cost 6.12% 6.32%
Net interest margin,
taxable-equivalent basis 1.09% 1.03%
Adjusted net interest
income (1) $ $ 1,799.3 $ 1,643.2
Taxable-equivalent
adjustment (2) 113.7 110.7
Quarter Ended
------------------------------------
3/31/02 12/31/01 9/30/01
---------- ----------- ---------
Fee and Other Income (Expense):
Transaction fees $ 33.8 $ 49.2 $ 29.0
Technology fees 33.7 49.6 38.7
Multifamily fees 19.2 17.2 16.6
Tax-advantaged
investments (64.9) (41.5) (63.6)
Other (18.2) (24.3) 28.3
Total $ 3.6 $ 50.2 $ 49.0
Quarter Ended
---------------------------
6/30/01 3/31/01
----------- -----------
Fee and Other Income (Expense):
Transaction fees $ 27.2 $ 22.5
Technology fees 37.7 37.3
Multifamily fees 15.1 14.0
Tax-advantaged
investments (60.2) (57.1)
Other 4.7 10.6
Total $ 24.5 $ 27.3
Quarter Ended
---------------------------------------
March 31, December 31, September 30,
2002 2001 2001
---------- ----------- ------------
Selected Balance Sheet Data:
Mortgage portfolio, net $ 731,716 $ 705,167 $ 686,801
Liquid assets 57,290 76,072 59,944
Total assets 807,961 799,791 766,650
Debentures, notes,
and bonds, net 769,775 763,467 726,992
Stockholders' Equity:
Preferred stock $ 1,928 $ 2,302 $ 2,302
Realized common equity 23,572 22,880 21,475
Other comprehensive
income (OCI)
Unrealized gains
(losses)
on securities, net 86 295 635
Cash flow hedging
results, net (4,833) (7,359) (10,634)
----------- ------------ -----------
Total accumulated OCI (4,747) (7,064) (9,999)
----------- ------------ -----------
Total stockholders'
equity $ 20,753 $ 18,118 $ 13,778
Core capital (3) $ 25,500 $ 25,182 $ 23,778
Quarter Ended
--------------------------
June 30, March 31,
2001 2001
---------- ----------
Selected Balance Sheet Data:
Mortgage portfolio, net $ 662,998 $ 640,734
Liquid assets 59,083 44,911
Total assets 737,151 700,977
Debentures, notes,
and bonds, net 702,334 666,592
Stockholders' Equity:
Preferred stock $ 2,302 $ 1,903
Realized common equity 20,676 19,579
Other comprehensive
income (OCI)
Unrealized gains
(losses)
on securities, net 153 303
Cash flow hedging
results, net (3,700) (5,699)
----------- -----------
Total accumulated OCI (3,547) (5,396)
----------- -----------
Total stockholders'
equity $ 19,431 $ 16,086
=========== ===========
Core capital (3) $ 22,978 $ 21,482
(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.
Voluntary Initiatives Disclosure
March 2002
INTEREST RATE RISK
Rate Level Shock (50bp)
---------------------------------------------------
Effective 1 Year Portfolio 4 Year Portfolio
Duration Gap Net Interest Net Interest
(in months) Income at Risk Income at Risk
------------ ---------------- -----------------
2000
----
1st Qtr 5 0.1% 4.3%
2nd Qtr 4 0.6% 4.8%
3rd Qtr 2 0.8% 4.3%
4th Qtr -3 0.5% 2.0%
2001
----
January -3 3.9% 3.6%
February -2 3.0% 2.1%
March 1 3.8% 3.2%
April 7 3.2% 4.9%
May 7 1.9% 4.5%
June 5 1.7% 4.4%
July 0 1.1% 2.9%
August -1 1.5% 2.1%
September -1 2.4% 3.6%
October -10 1.8% 6.9%
November 3 4.2% 3.8%
December 5 5.1% 4.5%
2002
----
January 2 6.1% 4.8%
February -2 5.1% 4.3%
March 5 3.8% 6.1%
Rate Slope Shock (25bp)
-----------------------------------
1 Year Portfolio 4 Year Portfolio
Net Interest Net Interest
Income at Risk Income at Risk
---------------- ----------------
2000
----
1st Qtr 1.0% 3.0%
2nd Qtr 1.0% 3.0%
3rd Qtr 1.0% 3.1%
4th Qtr 3.0% 4.3%
2001
----
January 3.6% 5.2%
February 3.2% 5.2%
March 3.1% 4.7%
April 2.0% 2.6%
May 1.5% 2.2%
June 0.9% 2.0%
July 1.8% 3.4%
August 1.9% 3.7%
September 2.8% 4.0%
October 3.8% 6.0%
November 3.1% 5.3%
December 2.4% 4.3%
2002
----
January 2.0% 4.1%
February 2.3% 4.4%
March 1.0% 3.1%
- 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%
March 31, 2002 7.1%
- 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
Before After
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 $1,349 $467
December 31, 2001(1) $1,332 $487
- 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 Pass > 30 %
December 31, 2001(1) Pass > 30 %
- Fannie Mae has implemented an interim version of the
risk-based capital stress test detailed in the Federal Housing
Enter- prise 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.
(1) Most recent data available.
MortgageDaily.com
Source:
Fannie Mae

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 April 1, 2002 (available at 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 $3.6 trillion of mortgage financing for nearly 43 million families. More information about Fannie Mae can be found on the Internet at http://www.fanniemae.com.
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