Fannie Mae 2008 Annual Report Download - page 101

CONSOLIDATED RESULTS OF OPERATIONS
Our business generates revenues from four principal sources: net interest income; guaranty fee income; trust
management income; and fee and other income. Other significant factors affecting our results of operations
include: fair value gains and losses; the timing and size of investment gains and losses; credit-related
expenses; losses from partnership investments; administrative expenses and our effective tax rate. We expect
high levels of period-to-period volatility in our results of operations and financial condition, principally due to
changes in market conditions that result in periodic fluctuations in the estimated fair value of financial
instruments that we mark-to-market through our earnings. These instruments include trading securities and
derivatives not designated for hedge accounting. The estimated fair value of our trading securities and
derivatives may fluctuate substantially from period to period because of changes in interest rates, credit
spreads and expected interest rate volatility, as well as activity related to these financial instruments.
The section below provides a comparative discussion of our consolidated results of operations for the three-year
period ended December 31, 2008. Following this section, we provide a discussion of our business segment
results. Table 3 presents a condensed summary of our consolidated results of operations for 2008, 2007 and 2006
and selected market data that we believe are useful in evaluating changes in our results between periods.
Table 3: Condensed Consolidated Results of Operations and Selected Market Data
(1)
2008 2007 2006 $ % $ %
For the Year Ended December 31, 2008 vs. 2007 2007 vs. 2006
Variance
(Dollars in millions, except per share amounts)
Net interest income . . . . . . . . . . . . . . . . . . . . $ 8,782 $ 4,581 $ 6,752 $ 4,201 92% $(2,171) (32)%
Guaranty fee income . . . . . . . . . . . . . . . . . . . 7,621 5,071 4,250 2,550 50 821 19
Trust management income
(2)
. . . . . . . . . . . . . 261 588 111 (327) (56) 477 430
Fee and other income . . . . . . . . . . . . . . . . . . 772 965 908 (193) (20) 57 6
Net revenues ........................ $ 17,436 $11,205 $12,021 $ 6,231 56% $ (816) (7)%
Losses on certain guaranty contracts . . . . . . . . — (1,424) (439) 1,424 100 (985) (224)
Investment losses, net . . . . . . . . . . . . . . . . . . (7,220) (867) (691) (6,353) (733) (176) (25)
Fair value losses, net
(3)
. . . . . . . . . . . . . . . . . (20,129) (4,668) (1,744) (15,461) (331) (2,924) (168)
Losses from partnership investments . . . . . . . . (1,554) (1,005) (865) (549) (55) (140) (16)
Administrative expenses. . . . . . . . . . . . . . . . . (1,979) (2,669) (3,076) 690 26 407 13
Credit-related expenses
(4)
. . . . . . . . . . . . . . . . (29,809) (5,012) (783) (24,797) (495) (4,229) (540)
Other non-interest expenses
(5)
. . . . . . . . . . . . . (1,294) (686) (210) (608) (89) (476) (227)
Income (loss) before federal income taxes and
extraordinary gains (losses). . . . . . . . . . . . . (44,549) (5,126) 4,213 (39,423) (769) (9,339) (222)
(Provision) benefit for federal income taxes . . . (13,749) 3,091 (166) (16,840) (545) 3,257 1,962
Extraordinary (losses) gains, net of tax effect . . (409) (15) 12 (394) (2,627) (27) (225)
Net (loss) income ..................... $(58,707) $ (2,050) $ 4,059 $(56,657) (2,764)% $(6,109) (151)%
Diluted earnings (loss) per common share... $ (24.04)$ (2.63) $ 3.65 $ (21.41) (814)% $ (6.28) (172)%
(1)
Certain prior period amounts have been reclassified to conform with the current period presentation in our
consolidated statements of operations.
(2)
We began separately reporting the revenues from trust management fees in our consolidated statements of operations
effective November 2006. We previously included these revenues as a component of interest income.
(3)
Consists of the following: (a) derivatives fair value gains (losses), net; (b) trading securities gains (losses), net;
(c) hedged mortgage assets gains (losses), net; (d) debt foreign exchange gains (losses), net; and (e) debt fair value
gains (losses), net.
(4)
Consists of provision for credit losses and foreclosed property expense.
(5)
Consists of the following: (a) debt extinguishment gains (losses), net; (b) minority interest in earnings (losses) of
consolidated subsidiaries and (c) other expenses.
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