Fannie Mae 2012 Annual Report Download - page 101

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2011 compared with 2010
Net income increased in 2011 compared with 2010, primarily due to an increase in guaranty fee income and gains from
partnership investments recognized in 2011 compared with losses from partnership investments recognized in 2010. The
increase in net income was partially offset by increased credit-related expenses in 2011 compared with 2010.
Guaranty fee income increased in 2011 compared with 2010, primarily due to higher charged guaranty fees on new
acquisitions.
Credit-related expenses increased in 2011 compared with 2010, primarily due to a stable allowance for loan losses in 2011
compared with a decrease in 2010. Although national multifamily market fundamentals continued to improve in 2011, certain
local markets and properties continued to underperform compared to the rest of the nation. Multifamily credit losses were
$391 million for 2011 compared with $498 million for 2010.
We recognized gains from partnership investments in 2011 compared with losses from partnership investments in 2010 as
stronger national multifamily market fundamentals resulted in improved property-level operating performance and increased
gains on the sale of investments.
Capital Markets Group Results
Table 25 displays the financial results of our Capital Markets group for the periods indicated. Following the table we discuss
the Capital Markets group’s financial results and describe the Capital Markets group’s mortgage portfolio. For a discussion of
the debt issued by the Capital Markets group to fund its investment activities, see “Liquidity and Capital Management.” For a
discussion of the derivative instruments that the Capital Markets group uses to manage interest rate risk, see “Consolidated
Balance Sheet Analysis—Derivative Instruments,” “Risk Management—Market Risk Management, Including Interest Rate
Risk Management—Derivative Instruments” and “Note 9, Derivative Instruments.” The primary sources of revenue for our
Capital Markets group are net interest income and fee and other income. Expenses and other items that impact income or loss
primarily include fair value gains and losses, investment gains and losses, other-than-temporary impairments, allocated
guaranty fee expense and administrative expenses.
Table 25: Capital Markets Group Results
For the Year Ended December 31, Variance
2012 2011 2010 2012 vs. 2011 2011 vs. 2010
(Dollars in millions)
Net interest income (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,241 $13,920 $14,321 $ (679) $ (401)
Investment gains, net(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,217 3,711 4,047 2,506 (336)
Net other-than-temporary impairments. . . . . . . . . . . . . . . . . . . . . (711)(306)(720)(405) 414
Fair value (losses) gains, net(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,041)(6,596) 239 3,555 (6,835)
Fee and other income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717 478 519 239 (41)
Other expenses(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,098)(2,253)(2,359) 155 106
Income before federal income taxes . . . . . . . . . . . . . . . . . . . . . . . 14,325 8,954 16,047 5,371 (7,093)
(Provision) benefit for federal income taxes . . . . . . . . . . . . . . . . . (124) 45 27 (169) 18
Net income attributable to Fannie Mae . . . . . . . . . . . . . . . . . . . . . $14,201 $ 8,999 $16,074 $ 5,202 $(7,075)
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(1) Includes contractual interest income, excluding recoveries, on nonaccrual loans received from the Single-Family segment of $5.2
billion, $6.6 billion and $6.3 billion for the years ended December 31, 2012, 2011 and 2010, respectively. The Capital Markets group’s
net interest income is reported based on the mortgage-related assets held in the segment’s portfolio and excludes interest income on
mortgage-related assets held by consolidated MBS trusts that are owned by third parties and the interest expense on the corresponding
debt of such trusts.
(2) We include the securities that we own regardless of whether the trust has been consolidated in reporting of gains and losses on
securitizations and sales of available-for-sale securities.
(3) Includes fair value gains or losses on derivatives and trading securities that we own, regardless of whether the trust has been
consolidated.
(4) Includes allocated guaranty fee expense, debt extinguishment losses, net, administrative expenses, and other (expenses) income. Gains
or losses related to the extinguishment of debt issued by consolidated trusts are excluded from the Capital Markets group’s results
because purchases of securities are recognized as such.