Fannie Mae 2002 Annual Report Download - page 29

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FANNIE MAE 2002 ANNUAL REPORT
Taxable-equivalent net interest income totaled
$11.068 billion in 2002, compared with $8.560 billion
in 2001 and $6.088 billion in 2000. The increase of
$2.508 billion, or 29 percent, in taxable-equivalent net
interest income was due primarily to 12 percent growth in
our average net mortgage portfolio and a higher net interest
yield, which was favorably affected by the low interest rate
environment and unusually steep yield curve. As mortgage
interest rates fell to the lowest level in 40 years and fixed-rate
mortgage originations reached record levels, we took
advantage of opportunities to grow our mortgage portfolio
at attractive spreads relative to our debt costs. Our net
interest yield continued to benefit and remained elevated
during 2002 because of actions we took during 2002 and
2001 to lower our debt costs by calling or retiring higher-
cost debt and temporarily replacing it with shorter-term,
lower-cost debt.
During 2001, taxable-equivalent net interest income
increased $2.472 billion or 41 percent over 2000, partially
due to the effect of the change in accounting for our
purchased options under FAS 133. Our taxable-equivalent
TABLE 1: TAXABLE-EQUIVALENT NET INTEREST INCOME AND AVERAGE BALANCES
Dollars in millions 2002 2001 2000
Interest income:
Mortgage portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $49,265 $46,478 $ 39,403
Nonmortgage investments and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,588 2,692 3,378
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,853 49,170 42,781
Interest expense1:
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,978 5,897 4,204
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,309 35,183 32,903
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,287 41,080 37,107
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10,566 8,090 5,674
Taxable-equivalent adjustment on tax-exempt investments2 . . . . . . . . . . . . . . . . . . . . . . . . . . . 502 470 414
Taxable-equivalent net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,068 $8,560 $ 6,088
Average balances3:
Interest-earning assets4:
Mortgage portfolio, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $735,943 $658,195 $553,531
Nonmortgage investments and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,658 58,811 51,490
Total interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 804,601 717,006 605,021
Interest-free funds5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,992) (23,630) (20,595)
Total interest-earning assets funded by debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $780,609 $693,376 $584,426
Interest-bearing liabilities1:
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $141,727 $137,078 $ 73,351
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 638,882 556,298 511,075
Total interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $780,609 $693,376 $584,426
Average interest rates2, 3:
Interest-earning assets:
Mortgage portfolio, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.73% 7.11% 7.16%
Nonmortgage investments and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.34 4.63 6.60
Total interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.35 6.90 7.11
Interest-free return5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 .21 .25
Total interest-earning assets funded by debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.53 7.11 7.36
Interest-bearing liabilities1:
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.90 4.16 5.70
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.88 6.35 6.44
Total interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.15 5.92 6.35
Net interest yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.38% 1.19% 1.01%
1Classification of interest expense and interest-bearing liabilities as short-term or long-term is based on effective maturity or repricing date, taking into consideration the effect of derivative financial instruments.
2Reflects non-GAAP adjustments to permit comparison of yields on tax-exempt and taxable assets based on a 35 percent marginal tax rate.
3Averages have been calculated on a monthly basis based on amortized cost.
4Includes average balance of nonaccrual loans of $4.6 billion in 2002, $2.6 billion in 2001, and $2.1 billion in 2000.
5Interest-free funds represent the portion of our investment portfolio funded by equity and non-interest bearing liabilities.