Fannie Mae 2002 Annual Report Download - page 88

86 FANNIE MAE 2002 ANNUAL REPORT
During 2002, we issued $3.5 billion of subordinated debt
securities that received ratings of AA- from S&P, Aa2 from
Moody’s, and AA by Fitch. We issued $5 billion of
subordinated debt securities that received a rating of AA-
from S&P and Aa2 from Moody’s in 2001. Subordinated debt
serves as a supplement to our equity capital, although it is not
a component of core capital. It provides a risk-absorbing
layer to supplement core capital for the benefit of senior debt
holders and is intended to serve as a consistent and early
market signal of credit risk for investors. By the end of 2003,
we intend to issue sufficient subordinated debt to bring the
sum of total capital and outstanding subordinated debt to at
least 4 percent of on-balance-sheet assets, after providing
adequate capital to support off-balance sheet MBS. Total
capital and outstanding subordinated debt represented
3.7 percent of on-balance-sheet assets at December 31, 2002,
compared with 3.4 percent at December 31, 2001.
Regulatory Environment
Fannie Mae is subject to capital adequacy standards
established by the Federal Housing Enterprises Financial
Safety and Soundness Act of 1992 (1992 Act) and continuous
examination by OFHEO, which was established by the
1992 Act. The capital adequacy standards require that our
core capital equal or exceed a minimum capital standard and
a critical capital standard. The Portfolios and Capital
Committee, chaired by the Chief Financial Officer, ensures
compliance with economic and regulatory risk-based capital
requirements. Table 44 shows our core capital and total
capital at year-end 2002 and 2001 compared with the
requirements.
TABLE 44: CAPITAL REQUIREMENTS
December 31,
Dollars in millions 2002 2001
Core capital1. . . . . . . . . . . . . . . . . . . . . . . . . . . $28,079 $25,182
Required minimum capital2, 5 . . . . . . . . . . . . . . 27,203 24,182
Excess of core capital over minimum capital5. . . $877 $1,000
Total capital3. . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,871 $25,976
Required risk-based capital . . . . . . . . . . . . . . . . . 17,434 NA
Excess of total capital over required
risk-based capital . . . . . . . . . . . . . . . . . . . . . $11,437 NA
Required critical capital4, 5 . . . . . . . . . . . . . . . . . $13,880 $12,324
Excess of core capital over required
critical capital5. . . . . . . . . . . . . . . . . . . . . . . 14,199 12,859
1The sum of (a) the stated value of common stock; (b) the stated value of outstanding noncumulative
perpetual preferred stock; (c) paid-in capital; and (d) retained earnings, less treasury stock. Core capital
excludes accumulated other comprehensive income (AOCI).
2The sum of (a) 2.50 percent of on-balance sheet assets; (b) .45 percent of outstanding MBS; and
(c) .45 percent of other off-balance sheet obligations, which may be adjusted by the Director of OFHEO
under certain circumstances (See 12 CFR 1750.4 for existing adjustments made by the
Director of OFHEO).
3The sum of (a) core capital and (b) the total allowance for loan losses and guaranty liability, less (c) the
specific loss allowance. Specific loss allowances totaled $19 million and $13 million at December 31, 2002
and 2001, respectively.
4The sum of (a) 1.25 percent of on-balance sheet assets; (b) .25 percent of outstanding MBS; and
(c) .25 percent of other off-balance sheet obligations, which may be adjusted by the Director of OFHEO
under certain circumstances.
5These amounts do not reflect the reclassification from our “Allowance for loan losses” to a “Guaranty
liability for MBS” the amount associated with the guaranty obligation for MBS that we own that
occurred in 2002. See Note 1 to the Notes to the Financial Statements, “Summary of Significant
Accounting Policies—Allowance for Loan Losses and Guaranty Liability for MBS.” The reclassification
will not have a material effect on these amounts.
The 1992 Act also established our risk-based capital
requirements, and it required OFHEO to adopt regulations
establishing a risk-based capital test. OFHEO published
regulations under the 1992 Act in September 2001, as
amended on March 15, 2002, establishing a risk-based capital
test to determine the amount of total capital we must hold
under the risk-based capital standard on a quarterly basis.
OFHEO implemented the risk-based capital standard on
September 13, 2002. At December 31, 2002, our risk-based
capital requirement was $17.4 billion. Our total capital was
$28.9 billion at year-end 2002, $11.4 billion higher than the
risk-based capital requirement.
TABLE 43: PREFERRED STOCK DIVIDENDS
Shares Issued Stated
Issue and Value Annual Redeemable on
Date Outstanding per Share Dividend Rate or After
Series D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 30, 1998 3,000,000 $50 5.250% September 30, 1999
Series E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 15, 1999 3,000,000 50 5.100 April 15, 2004
Series F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 20, 2000 13,800,000 50 3.5401March 31, 20023
Series G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August 8, 2000 5,750,000 50 1.8302September 30, 20023
Series H . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 6, 2001 8,000,000 50 5.810 April 6, 2006
Series I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . October 28, 2002 6,000,000 50 5.375 October 28, 2007
Series J . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 26, 2002 14,000,000 50 3.7804November 26, 2004
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,550,000
1Rate effective March 31, 2002. Variable dividend rate that resets every two years thereafter at the Constant Maturity U.S. Treasury rate minus .16 percent with a cap of 11 percent per year.
2Rate effective September 30, 2002. Variable dividend rate that resets every two years thereafter at the Constant Maturity U.S. Treasury rate minus .18 percent with a cap of 11 percent per year.
3Represents initial call date. Redeemable every two years thereafter.
4Initial rate. Variable dividend rate that resets every two years thereafter at the two-year U.S. Dollar Swap Rate plus 1.38 percent with a cap of 8 percent per year.