Fannie Mae 2002 Annual Report Download - page 38

36 FANNIE MAE 2002 ANNUAL REPORT
Table 6 reconciles taxable-equivalent core net interest
income to our reported net interest income and presents an
analysis of our net interest margin based on the average
balances and yields of mortgage assets, nonmortgage
investments, and debt. Our taxable-equivalent core net
interest income and net interest margin are significantly
different than our reported taxable-equivalent net interest
income and net interest yield because our core measures
include the amortization of our purchased options premiums
on a straight-line basis over the life of the option, which is
not in accordance with GAAP. The graph compares
Fannie Mae’s core net interest income to average 30-year
fixed rate mortgage rates over the past ten years.
TABLE 6: TAXABLE-EQUIVALENT CORE NET INTEREST INCOME AND AVERAGE BALANCES
Dollars in millions 2002 2001 2000
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,566 $ 8,090 $ 5,674
Purchased options amortization expense1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,814) (590) —
Core net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,752 7,500 5,674
Taxable-equivalent adjustment on tax-exempt investments2 . . . . . . . . . . . . . . . . . . . . . . . . . . . 502 470 414
Taxable-equivalent core net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,254 $ 7,970 $ 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 liabilities6:
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 liabilities6:
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.15 4.28 5.70
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10 6.43 6.44
Total interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.38 6.00 6.35
Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.15% 1.11% 1.01%
1Reflects non-GAAP adjustment for straight-line amortization of purchased options premiums that would have been recorded prior to the adoption of FAS 133 in 2001.
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.
6Classification 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. The cost
of debt includes expense for the amortization of purchased options.