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SEC Filings

10-Q
FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE filed this Form 10-Q on 05/06/2011
Entire Document
 
Table of Contents

 
Table 17:  Capital Markets Group Results
 
                         
    For the Three Months
 
    Ended March 31,  
    2011     2010     Variance  
    (Dollars in millions)  
 
Statement of operations data:
                       
Net interest income(1)
  $ 3,710     $ 3,057     $ 653  
Investment gains, net(2)
    870       792       78  
Net other-than-temporary impairments
    (44 )     (236 )     192  
Fair value gains (losses), net(3)
    218       (1,186 )     1,404  
Fee and other income
    75       104       (29 )
Other expenses(4)
    (553 )     (423 )     (130 )
                         
Income before federal income taxes
    4,276       2,108       2,168  
Benefit for federal income taxes
    5       29       (24 )
                         
Net income attributable to Fannie Mae
  $ 4,281     $ 2,137     $ 2,144  
                         
 
 
(1) Includes $2.0 billion and $795 million of contractual interest, excluding recoveries, on nonaccrual loans received from the Single-Family segment for the three months ended March 31, 2011 and 2010, respectively. Capital Markets net interest income is reported based on the mortgage-related assets held in the segment’s 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) Fair value gains or losses on trading securities include the trading securities that we own, regardless of whether the trust has been consolidated.
 
(4) Includes allocated guaranty fee expense, debt extinguishment gains or losses, net, administrative expenses, and other income or 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.
 
Net Interest Income
 
The Capital Markets group reports interest income and amortization of cost basis adjustments only on securities and loans that are held in our portfolio. For mortgage loans held in our mortgage portfolio, when interest income is no longer recognized in accordance with our nonaccrual accounting policy, the Capital Markets group recognizes interest income reimbursements that the group receives, primarily from Single-Family, for the contractual interest due. The interest expense recognized on the Capital Markets group’s statement of operations is limited to our funding debt, which is reported as “Debt of Fannie Mae” in our condensed consolidated balance sheets. Net interest expense also includes a cost of capital charge allocated among the three business segments.
 
The Capital Markets group’s net interest income increased in the first quarter of 2011 compared with the first quarter of 2010 primarily due to a decline in funding costs as we replaced higher cost debt with lower cost debt. This increase of net interest income was partially offset by a decline in interest income from our mortgage portfolio. Although our mortgage portfolio loan balance increased, the reduction of our mortgage securities balance and increase in the balance of nonperforming loans, mainly loans modified in a TDR and our purchases of delinquent loans from MBS trusts, caused the yield on our portfolio and our interest income to decline. The reimbursements of contractual interest due on nonaccrual loans, from the Single-Family business, were a significant portion of the Capital Markets group’s interest income during the first quarter of 2011. However, the increase in these reimbursements was offset by the decline in interest income on our mortgage-related securities because our securities portfolio balance has declined.
 
Additionally, Capital Markets’ net interest income and net interest yield increased in the first quarter of 2011 and 2010 as a result of funds we received from Treasury under the senior preferred stock purchase agreement


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