Fannie Mae 2014 Annual Report Download - page 263

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
F-48
Qualified Pension Plan Assets
Our investment strategy is to invest in a manner intended to meet the liquidity requirements necessary to distribute the
pension plan assets during 2015.
The fair value of our qualified plan assets in 2014 that were classified as Level 1 consisted of $767 million invested in a long-
term U.S. investment grade corporate bond fund and $784 million in a money market fund. The corporate bond fund’s
objective is to track the performance of Barclays US Long Credit A/Better index. The fair value of our qualified plan assets
also included $1 million of cash equivalents classified as Level 2.
The fair value of our qualified plan assets in 2013 that were classified as Level 1 consisted of $927 million invested in a long-
term U.S. investment grade corporate bond fund, $257 million invested in a long-term U.S. government bond fund, and $134
million invested in a long-term U.S. government/credit bond fund. These mutual funds’ objective was to track the
performance of the Barclays US Long Credit A/Better index, the Barclays U.S. Treasury STRIPS 20-30 Year Equal Par Bond
Index, and the Barclays U.S. Long Government/Credit Float Adjusted Index, respectively. The fair value of our qualified plan
assets also included $6 million of cash equivalents classified as Level 2.
The fair value of plan assets in Level 1 are determined based on quoted prices of identical assets in active markets as of year
end, while the fair value of plan assets in Level 2 are determined based on the net asset value per share of the investments as
of year end.
13. Segment Reporting
Our three reportable segments are: Single-Family, Multifamily, 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. Under our
segment reporting, the sum of the results for our three business segments does not equal our consolidated statements of
operations and comprehensive income, as we separate the activity related to our consolidated trusts from the results generated
by our three segments. We also include an eliminations/adjustments category to reconcile our business segment financial
results and the activity related to our consolidated trusts to net income in our consolidated statements of operations and
comprehensive income.
The section below provides a discussion of the three business segments and how each segment’s financial information
reconciles to our consolidated financial statements.
Single-Family
The primary source of revenue for our Single-Family business is the guaranty fees the segment receives as compensation for
assuming the credit risk on the mortgage loans underlying single-family Fannie Mae MBS, most of which are held within
consolidated trusts, and on the single-family mortgage loans held in our retained mortgage portfolio. The primary source of
profit for the Single-Family segment is the difference between the guaranty fees earned and the costs of providing the
guaranty, including credit-related expense.
Our segment reporting presentation differs from our consolidated balance sheets and statements of operations and
comprehensive income in order to reflect the activities and results of the Single-Family segment. The significant differences
from the consolidated statements of operations and comprehensive income are as follows:
• Guaranty fee income—Guaranty fee income reflects the cash guaranty fees paid by MBS trusts to Single-Family, the
amortization of deferred cash fees (both the previously recorded deferred cash fees that were eliminated from our
consolidated balance sheets upon adoption of the consolidation accounting guidance on January 1, 2010 and deferred
guaranty fees received subsequent to that adoption are currently recognized in our consolidated financial statements
through interest income), such as buy-ups, buy-downs, and risk-based pricing adjustments, and the guaranty fees from
the Capital Markets group on single-family loans in our retained mortgage portfolio. To reconcile to our consolidated
statements of operations and comprehensive income, we eliminate guaranty fees and the amortization of deferred cash
fees related to consolidated trusts as they are now reflected as a component of interest income; however, such
accounting continues to be reflected for the segment reporting presentation.
• Net interest income or loss—Net interest income within the Single-Family segment reflects interest expense to
reimburse Capital Markets and consolidated trusts for contractual interest not received on mortgage loans, when
interest income is no longer recognized in accordance with our nonaccrual accounting policy in our consolidated
statements of operations and comprehensive income. Net interest income (loss), also includes an allocated cost of