Fannie Mae 2014 Annual Report Download - page 275

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
F-60
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(1) The amounts reclassified from AOCI represent the gain or loss recognized in earnings due to a sale of an available-for-sale security or
the recognition of a net impairment in earnings, which are recorded in “Investments gains (losses), net” in our consolidated statements
of operations and comprehensive income.
(2) The amounts reclassified from AOCI represents activity from our defined benefit pension plans, which is recorded in “Salaries and
employee benefits” in our consolidated statements of operations and comprehensive income.
15. Regulatory Capital Requirements
FHFA has announced that during the conservatorship our existing statutory and FHFA-directed regulatory capital
requirements will not be binding and that FHFA will not issue quarterly capital classifications. We submit capital reports to
FHFA during the conservatorship and FHFA monitors our capital levels. FHFA has stated that it does not intend to report our
critical capital, risk-based capital or subordinated debt levels during the conservatorship. Our regulatory capital classification
measures are determined based on guidance from FHFA, in which FHFA (1) directed us, for loans backing Fannie Mae MBS
held by third parties, to continue reporting our minimum capital requirements based on 0.45% of the unpaid principal balance
and critical capital based on 0.25% of the unpaid principal balance, regardless of whether these loans have been consolidated
pursuant to accounting rules, and (2) issued a regulatory interpretation stating that our minimum capital requirements are not
automatically affected by the consolidation accounting guidance. Additionally, our regulatory capital classification measures
exclude the funds provided to us by Treasury pursuant to the senior preferred stock purchase agreement, as the senior
preferred stock does not qualify as core capital due to its cumulative dividend provisions.
Pursuant to the GSE Act, if the Director of FHFA makes a written determination that our total assets are less than our total
obligations (a net worth deficit) for a period of 60 days, FHFA is mandated by law to appoint a receiver for Fannie Mae.
Treasury’s funding commitment under the senior preferred stock purchase agreement is intended to ensure that we avoid a net
worth deficit, in order to avoid this mandatory trigger of receivership. In order to avoid a net worth deficit, our conservator
may request funds on our behalf from Treasury under the senior preferred stock purchase agreement.
FHFA has directed us, during the time we are under conservatorship, to focus on managing to a positive net worth. We had a
positive net worth of $3.7 billion and $9.6 billion as of December 31, 2014 and 2013, respectively.
The following table displays our regulatory capital classification measures as of December 31, 2014 and 2013.
As of December 31,
2014 2013
(Dollars in millions)
Core capital(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(115,202) $ (108,811)
Statutory minimum capital requirement(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,044 28,472
Deficit of core capital over statutory minimum capital requirement . . . . . . . . . . . . . . . . . . . . . . . . . . $(142,246) $ (137,283)
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(1) The sum of (a) the stated value of our outstanding common stock (common stock less treasury stock); (b) the stated value of our
outstanding non-cumulative perpetual preferred stock; (c) our paid-in capital; and (d) our retained earnings (accumulated deficit). Core
capital does not include: (a) accumulated other comprehensive income (loss) or (b) senior preferred stock.
(2) Generally, the sum of (a) 2.50% of on-balance sheet assets, except those underlying Fannie Mae MBS held by third parties; (b) 0.45%
of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and (c) up to 0.45% of other off-balance sheet
obligations, which may be adjusted by the Director of FHFA under certain circumstances.
Our critical capital requirement is generally equal to the sum of: (1) 1.25% of on-balance sheet assets, except those
underlying Fannie Mae MBS held by third parties; (2) 0.25% of the unpaid principal balance of outstanding Fannie Mae
MBS held by third parties; and (3) 0.25% of other off-balance sheet obligations, which may be adjusted by the Director of
FHFA under certain circumstances.
As of December 31, 2014 and 2013, we had a minimum capital deficiency of $142.2 billion and $137.3 billion, respectively.
Under the terms of the senior preferred stock purchase agreement with Treasury, beginning January 1, 2013, we are required
to pay Treasury each quarter dividends when, as and if declared, equal to the excess of our net worth as of the end of the
immediately preceding fiscal quarter over an applicable capital reserve amount. As a result, in periods in which we have net
worth, our minimum capital deficiency will decline to the extent of our net worth but the deficiency will increase in the
subsequent period as we pay Treasury the corresponding senior preferred stock dividend. See “Note 14, Equity” for more