Fannie Mae 2005 Annual Report Download - page 294

$9 million for the years ended December 31, 2005, 2004 and 2003, respectively, based on actual contributions
of 2% of salary for each of the reported years. The fair value of unearned ESOP shares, which represents the
fair value of common shares issued or treasury shares sold to the ESOP, was $1 million and $2 million as of
December 31, 2005 and 2004, respectively.
Participants are 100% vested in their ESOP accounts either upon attainment of age 65 or five years of service.
Employees who are at least 55 years of age, and have at least 10 years of participation in the ESOP, may
qualify to diversify vested ESOP shares by rolling over all or a portion of the value of their ESOP account
into investment funds available under the Retirement Savings Plan without losing the tax-deferred status of the
value of the ESOP.
Participants are immediately vested in all dividends paid on the shares of Fannie Mae common stock allocated
to their account. Unless employees elect to receive the dividend in cash, ESOP dividends are automatically
reinvested in Fannie Mae common stock within the ESOP. If the employee does elect to receive the dividend
in cash, the dividends are accrued upon declaration and are distributed in February for the four previous
quarters pursuant to the employee’s election. Shares held but not allocated to participants who forfeited their
shares prior to vesting are used to reduce our future contributions. ESOP shares are a component of our
weighted shares outstanding for purposes of our EPS calculations, except unallocated shares which are not
treated as outstanding until they are committed to be released for allocation to employee accounts. All cash
contributions are held in a trust managed by the plan trustee and are invested in Fannie Mae common stock.
The following table displays the ESOP activity for the years ended December 31, 2005 and 2004.
2005 2004
For the Year Ended
December 31,
Common shares allocated to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,637,477 1,582,653
Common shares committed to be released to employees . . . . . . . . . . . . . . . . . . . . . . . 182,074 140,692
Unallocated common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 763 2,482
14. Segment Reporting
Our three reportable segments are: Single-Family Credit Guaranty, HCD and Capital Markets. We use these
three segments to generate revenue and manage business risk and each segment is based on the type of
business activities it performs. These activities are discussed below.
Single-Family Credit Guaranty. Our Single-Family Credit Guaranty segment works with our lender customers
to securitize single-family mortgage loans into Fannie Mae MBS and to facilitate the purchase of single-family
mortgage loans for our mortgage portfolio. Our Single-Family Credit Guaranty segment has responsibility for
managing our credit risk exposure relating to the single-family Fannie Mae MBS held by third parties (such as
lenders, depositories and global investors), as well as the single-family mortgage loans and single-family
Fannie Mae MBS held in our mortgage portfolio. Our Single-Family Credit Guaranty segment also has
responsibility for pricing the credit risk of the single-family mortgage loans we purchase for our mortgage
portfolio. Revenues in the segment are derived primarily from (i) the guaranty fees the segment receives as
compensation for assuming the credit risk on the mortgage loans underlying single-family Fannie Mae MBS
and on the single-family mortgage loans held in our portfolio and (ii) interest income earned on cash flows
from the date of remittance by servicers until the date of distribution to MBS certificate holders, commonly
referred to as float income. The primary source of profit for the Single-Family Credit Guaranty segment is the
difference between the guaranty fees earned and the costs of providing this service, including credit-related
losses.
Housing and Community Development. Our HCD segment helps to expand the supply of affordable and
market-rate rental housing in the United States primarily by: (i) working with our lender customers to
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)