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112 FANNIE MAE 2002 ANNUAL REPORT
2002a
Total Core Reconciling
Portfolio C
redit Business Items Related to Reported
Dollars in millions Investment Guaranty Earnings Purchased Options Results
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,869 $ 697 $10,566 $ — $ 10,566
Purchased options amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,814) — (1,814) 1,814c—
Core net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,055 697 8,752 1,814 10,566
Guaranty fee income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,374) 3,190 1,816 — 1,816
Fee and other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348 (116) 232 — 232
Credit-related expensesb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —(92) (92) — (92)
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (357) (862) (1,219) — (1,219)
Purchased options expense under FAS 133 . . . . . . . . . . . . . . . . . . . . . . . . . . . ——— (4,545)d(4,545)
Debt extinguishments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (710) — (710) — (710)
Income before federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,962 2,817 8,779 (2,731) 6,048
Provision for federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,747) (638) (2,385) 956f(1,429)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,215 $2,179 $ 6,394 $(1,775) $ 4,619
2001a
To tal Core Reconciling
Portfolio Credit Business Items Related to Reported
Investment Guaranty Earnings Purchased Options Results
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,369 $ 721 $ 8,090$—$8,090
Purchased options amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . (590) — (590) 590c—
Core net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,779 721 7,500 590 8,090
Guaranty fee income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,109) 2,591 1,482 — 1,482
Fee and other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 (60) 151 — 151
Credit-related expensesb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (78) (78) — (78)
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (302) (715) (1,017) — (1,017)
Special contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (192) (108) (300) — (300)
Purchased options expense under FAS 133 . . . . . . . . . . . . . . . . . . . . . . . . . . — — — (37)d(37)
Debt extinguishments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (524) — (524) — (524)
Income before federal income taxes and effect of accounting change . . . . . . . 4,863 2,351 7,214 553 7,767
Cumulative effect of accounting change, net of tax effect . . . . . . . . . . . . . . . . — — — 168e168
Provision for federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,374) (473) (1,847) (194)f(2,041)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,489 $ 1,878 $ 5,367$527 $ 5,894
2000
Total Core Reconciling
Portfolio Credit Business Items Related to Reported
Investment Guaranty Earnings Purchased Options Results
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,055 $ 619 $ 5,674 $ — $ 5,674
Purchased options amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — —
Core net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,055 619 5,674 — 5,674
Guaranty fee income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,079) 2,430 1,351 — 1,351
Fee and other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (71) (44) — (44)
Credit-related expensesb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (94) (94) — (94)
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (254) (651) (905) — (905)
Debt extinguishments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 — 49 — 49
Income before federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,798 2,233 6,031 — 6,031
Provision for federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,053) (530) (1,583) — (1,583)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,745 $ 1,703 $ 4,448 $ — $ 4,448
aReported net income for 2002 and 2001 includes the effect of FAS 133, which was adopted on January 1, 2001.
bCredit-related expenses include the income statement line items “Provision for losses” and “ Foreclosed property income.”
cThis amount represents the straight-line amortization of purchased options expense that we allocate to interest expense over the original expected life of the options. We include this amount in core business earnings instead
of recording the unrealized gains and losses on purchased options to make it consistent with the accounting for the embedded options in our callable debt and the vast majority of our mortgages.
dThis amount, which is recorded in our income statement under purchased options expense, represents unrealized gains and losses on purchased options recorded in accordance with FAS 133. We exclude this amount from
our core business earnings measure because it does not reflect our strategy to hold options to maturity or exercise date and it is not our strategy to realize the period-to-period fluctuations in the value of options.
eThis non-recurring amount represents the one-time transition recorded upon the adoption of FAS 133 on January 1, 2001. We exclude the transition gain from core business earnings because it relates to unrealized gains
on purchased options that were recorded when we adopted FAS 133.
fThis amount represents the net federal income tax effect of core business earnings adjustments based on the applicable federal income tax rate of 35 percent.