Fannie Mae 2007 Annual Report Download - page 84

loans returned to accrual status. Of these amounts recognized into interest income, $80 million, $43 million and
$15 million for 2007, 2006 and 2005, respectively, related to the accretion of the fair value discount recorded upon
purchase of SOP 03-3 loans.
(3)
Includes cash equivalents.
(4)
Includes a reverse repurchase agreement with Lehman Brothers with a carrying value and book value of $5.0 billion as
of December 31, 2007, pursuant to an existing master repurchase agreement and associated custodial undertaking tri-
party agreement, which exceeded 10% of our stockholders’ equity. The amount at risk under the transaction, which
had a term of 33 days and matured in January 2008, was $5.0 billion.
(5)
We calculate our net interest yield by dividing our net interest income for the period by the average balance of our
total interest-earning assets during the period.
Table 5 presents the total variance, or change, in our net interest income between periods and the extent to
which that variance is attributable to: (1) changes in the volume of our interest-earning assets and interest-
bearing liabilities or (2) changes in the interest rates of these assets and liabilities.
Table 5: Rate/Volume Analysis of Net Interest Income
Total
Variance Volume Rate
Total
Variance Volume Rate
Variance Due to:
(1)
Variance Due to:
(1)
2007 vs. 2006 2006 vs. 2005
(Dollars in millions)
Interest income:
Mortgage loans
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,414 $ 999 $ 415 $ 116 $ (482) $ 598
Mortgage securities . . . . . . . . . . . . . . . . . . . . . . . . (1,261) (1,540) 279 (2,850) (4,570) 1,720
Non-mortgage securities . . . . . . . . . . . . . . . . . . . . . 707 1,050 (343) 1,144 156 988
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . . 187 104 83 342 333 9
Advances to lenders . . . . . . . . . . . . . . . . . . . . . . . . 92 36 56 31 22 9
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . 1,139 649 490 (1,217) (4,541) 3,324
Interest expense:
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,268 561 707 1,189 (2,683) 3,872
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,047 46 2,001 2,362 (322) 2,684
Federal funds purchased and securities sold under
agreements to repurchase . . . . . . . . . . . . . . . . . . (5) (7) 2 (15) (32) 17
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . 3,310 600 2,710 3,536 (3,037) 6,573
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . $(2,171) $ 49 $(2,220) $(4,753) $(1,504) $(3,249)
(1)
Combined rate/volume variances are allocated to both rate and volume based on the relative size of each variance.
(2)
Includes interest income related to SOP 03-3 loans of $496 million, $361 million and $123 million for 2007, 2006 and
2005, respectively, primarily from accretion of loans returned to accrual status. Of these amounts recognized into
interest income, $80 million, $43 million and $15 million for 2007, 2006 and 2005, respectively, related to the
accretion of the fair value discount recorded upon purchase of SOP 03-3 loans.
Net interest income of $4.6 billion for 2007 decreased 32% from $6.8 billion in 2006, attributable to a 33%
(28 basis points) decline in our net interest yield to 0.57%, which was partially offset by a 2% increase in our
average interest-earning assets. We continued to experience compression in our net interest yield during 2007,
largely attributable to the increase in our short-term and long-term debt costs as we continued to replace, at
higher interest rates, maturing debt that we had issued at lower interest rates during the past few years. The
overall increase in the average cost of our debt of 35 basis points more than offset a 5 basis point increase in
the average yield on our interest-earning assets in 2007. In addition, as discussed below, in November 2006,
we began separately reporting the fees we receive from the interest earned on cash flows between the date of
remittance of mortgage and other payments to us by servicers and the date of distribution of these payments to
MBS certificateholders, which we refer to as float income, as “Trust management income.” We previously
reported these amounts as a component of “Interest income.” The reclassification of these fees contributed to
the decrease in our net interest yield, resulting in a reduction of approximately 7 basis points in 2007.
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