Fannie Mae 2004 Annual Report Download - page 100

Regulatory Capital Impact
The following table displays the impact of the restatement on regulatory capital as of December 31, 2003 and
2002.
Table 9: Regulatory Capital Impact of Restatement as of December 31, 2003 and 2002
2003 2002
As of December 31,
(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
The restatement adjustments resulted in a net decrease in regulatory core capital of $7.5 billion and $7.6 billion
as of December 31, 2003 and 2002, respectively. Additionally, the restatement adjustments of $7.7 billion and
$8.1 billion as of December 31, 2003 and 2002, respectively, caused the previously reported surplus of
required minimum capital to become a deficit.
Although we had a deficit of required minimum capital and the restatement adjustments decreased required
critical capital by $7.6 billion and $7.9 billion as of December 31, 2003 and 2002, we maintained a surplus of
required critical capital.
These changes in our regulatory capital measures were primarily the result of errors relating to our accounting
for derivative instruments. As AOCI is not included in the calculation of required minimum or critical capital,
the reclassification of net derivative losses from AOCI into net income had a significant negative impact on
required minimum and critical capital, despite an increase in stockholders’ equity.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with GAAP requires management to make a number of
judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and
expenses in the consolidated financial statements.
We have identified four accounting policies that require significant estimates and judgments and have a
significant impact on our financial condition and results of operations. These policies are considered critical
because the estimated amounts are likely to fluctuate from period to period due to the significant judgments
and assumptions about highly complex and inherently uncertain matters and because the use of different
assumptions related to these estimates could have a material impact on our financial condition or results of
operations. These four accounting policies are: (i) the fair value of financial instruments; (ii) the amortization
of cost basis adjustments using the effective interest method; (iii) the allowance for loan losses and reserve for
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