Print Page  |  Close Window

SEC Filings

10-Q
FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE filed this Form 10-Q on 05/07/2015
Entire Document
 


Table 13: Capital Markets Group Results
 
For the Three Months Ended March 31,
 
2015
 
2014
 
Variance
 
(Dollars in millions)
Net interest income(1)
$
1,602

 
 
 
$
1,830

 
 
 
$
(228
)
 
Investment gains, net(2)
1,509

 
 
 
1,285

 
 
 
224

 
Fair value losses, net(3)
(1,970
)
 
 
 
(1,337
)
 
 
 
(633
)
 
Fee and other income
55

 
 
 
4,133

 
 
 
(4,078
)
 
Other expenses(4)
(378
)
 
 
 
(410
)
 
 
 
32

 
Income before federal income taxes
818

 
 
 
5,501

 
 
 
(4,683
)
 
Provision for federal income taxes
(219
)
 
 
 
(1,666
)
 
 
 
1,447

 
Net income attributable to Fannie Mae
$
599

 
 
 
$
3,835

 
 
 
$
(3,236
)
 
__________
(1) 
Includes contractual interest income, excluding recoveries, on nonaccrual loans received from the Single-Family segment of $559 million and $743 million for the three months ended March 31, 2015 and 2014, respectively. The Capital Markets group’s net interest income is reported based on the mortgage-related assets held in the segment’s retained mortgage portfolio and excludes interest income on mortgage-related assets held by consolidated MBS trusts that are owned by third parties and the interest expense on the corresponding debt of such trusts.
(2) 
We include the securities that we own regardless of whether the trust has been consolidated in reporting of gains and losses on securitizations and sales of available-for-sale securities.
(3) 
Includes fair value gains or losses on derivatives and trading securities that we own, regardless of whether the trust has been consolidated.
(4) 
Includes allocated guaranty fee expense, debt extinguishment gains, net, administrative expenses, and other expenses. Gains or losses related to the extinguishment of debt issued by consolidated trusts are excluded from the Capital Markets group’s results because purchases of securities are recognized as such.
Pre-tax income decreased in the first quarter of 2015 compared with the first quarter of 2014 primarily due to lower fee and other income and net interest income, as well as higher fair value losses in the first quarter of 2015.
Fee and other income decreased in the first quarter of 2015 compared with the first quarter of 2014 due to revenue of $4.1 billion recognized in the first quarter of 2014 as a result of settlement agreements resolving certain lawsuits relating to PLS sold to us.
Investment gains increased in the first quarter of 2015 compared with the first quarter of 2014 primarily due to an increase in the amount of non-agency mortgage-related securities sold in the first quarter of 2015 compared with the amount of such securities that were sold in the first quarter of 2014.
Fair value losses in the first quarter of 2015 were primarily due to fair value losses on our risk management derivatives. The derivatives fair value losses that are reported for the Capital Markets group are consistent with the losses reported in our condensed consolidated statements of operations and comprehensive income. We discuss our derivatives fair value losses in “Consolidated Results of Operations—Fair Value Losses, Net.”
The decrease in net interest income in the first quarter of 2015 compared with the first quarter of 2014 was primarily due to a decline in the average balance of our retained mortgage portfolio as we continued to reduce this portfolio pursuant to the requirements of our senior preferred stock purchase agreement with Treasury and FHFA’s additional portfolio cap.
We supplement our issuance of debt securities with derivative instruments to further reduce interest rate risk. The effect of these derivatives, in particular the periodic net interest expense accruals on interest rate swaps, is not reflected in the Capital Markets group’s net interest income but is included in our results as a component of “Fair value losses, net” and is displayed in “Table 6: Fair Value Losses, Net.”
The Capital Markets Group’s Mortgage Portfolio
The Capital Markets group’s mortgage portfolio, which we also refer to as our retained mortgage portfolio, consists of mortgage loans and mortgage-related securities that we own. Mortgage-related securities held by the Capital Markets group include Fannie Mae MBS and non-Fannie Mae mortgage-related securities. The Fannie Mae MBS that we own are maintained as securities on the Capital Markets group’s balance sheets. The portion of assets held by consolidated MBS trusts

29