Fannie Mae 2004 Annual Report Download - page 337

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). The critical capital standard is
generally equal to the sum of: (i) 1.25% of on-balance sheet assets; (ii) 0.25% of the unpaid principal balance
of outstanding Fannie Mae MBS held by third parties; and (iii) up to 0.25% of other off-balance sheet
obligations, which may be adjusted by the Director of OFHEO under certain circumstances.
OFHEO’s risk-based capital standard ties our capital requirements to the risk in our book of business, as
measured by a stress test model. The stress test simulates our financial performance over a ten-year period of
severe economic conditions characterized by both extreme interest rate movements and mortgage default rates.
Simulation results indicate the amount of capital required to survive this prolonged period of economic stress
absent new business or active risk management action. In addition to this amount determined by the stress test,
the risk-based capital requirement includes an additional 30% surcharge to cover unspecified management and
operations risks. OFHEO sets this threshold quarterly and it is measured against total capital, defined in the
table below.
The following table displays our regulatory capital classification measures as of December 31, 2004 and 2003.
2004
(1)
2003
(1)
As of December 31,
(Restated)
(Dollars in millions)
Core capital
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,514 $26,953
Required minimum capital
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,121 31,816
Surplus (deficit) of core capital over/under required minimum capital . . . . . . . . . . . . . . . $ 2,393 $ (4,863)
Surplus (deficit) of core capital percentage over/under required minimum capital
(4)
. . . . . 7.4% (15.3)%
Total capital
(5)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,196 $27,487
Required risk-based capital
(6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,039 27,221
Surplus of total capital over required risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . $25,157 $ 266
Core capital
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,514 $26,953
Required critical capital
(7)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,435 16,261
Surplus of core capital over required critical capital . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,078 $10,691
Surplus of core capital percentage over required critical capital
(8)
. . . . . . . . . . . . . . . . . . 110.0% 65.7%
(1)
Except for required risk-based capital amounts, all amounts represent estimates which will be resubmitted to OFHEO
for their certification. Required risk-based capital amounts represent previously announced results by OFHEO. OFHEO
may determine that results require restatement in the future based upon analysis provided by us.
(2)
The sum of (a) the stated value of our outstanding common stock (common stock less treasury stock); (b) the stated
value of our outstanding non-cumulative perpetual preferred stock; (c) our paid-in capital; and (d) our retained earnings.
Core capital excludes AOCI.
(3)
Generally, the sum of (a) 2.50% of on-balance sheet assets; (b) 0.45% of the unpaid principal balance of outstanding
Fannie Mae MBS held by third parties; and (c) up to 0.45% 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).
(4)
Defined as the surplus (deficit) of core capital over required minimum capital expressed as a percentage of required
minimum capital.
(5)
The sum of (a) core capital and (b) the total allowance for loan losses and reserve for guaranty losses, less (c) the
specific loss allowance (that is, the allowance required on individually-impaired loans). The specific loss allowance
totaled $63 million and $68 million as of December 31, 2004 and 2003, respectively.
F-86
FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)