e8vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 16, 2007
Federal National Mortgage Association
(Exact name of registrant as specified in its charter)
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| Federally chartered corporation
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000-50231
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52-0883107 |
(State or other jurisdiction
of incorporation)
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(Commission
File Number)
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(IRS Employer
Identification Number) |
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| 3900 Wisconsin Avenue, NW
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20016 |
| Washington, DC
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(Zip Code) |
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Registrant’s telephone number, including area code: 202-752-7000
(Former Name or Former Address, if Changed Since Last Report):
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy
the filing obligation of the registrant under any of the following provisions (see General
Instruction A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c)) |
Item 7.01 Regulation FD Disclosure
On August 16, 2007, Fannie Mae posted to its website (www.fanniemae.com) a 2006 10-K Investor
Summary presentation consisting primarily of summary historical financial information about the
company excerpted from Fannie Mae’s 2006 Form 10-K. The presentation is furnished as Exhibit 99.1
to the Form 8-K and incorporated herein by reference.
The information in this report, including the exhibit submitted herewith, shall not be deemed
“filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to
the liabilities of Section 18, nor shall it be deemed incorporated by reference into any disclosure
document relating to Fannie Mae, except to the extent, if any, expressly set forth by specific
reference in such document.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits. The exhibit index filed herewith is incorporated herein by reference.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
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FEDERAL NATIONAL MORTGAGE ASSOCIATION |
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By
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/s/ ROBERT T. BLAKELY |
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Robert T. Blakely
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Executive Vice President and Chief Financial
Officer |
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Date: August 16, 2007
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EXHIBIT INDEX
The following exhibit is submitted herewith:
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Description of Exhibit |
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99.1
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2006 10-K Investor Summary Presentation, dated August 16, 2007 |
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exv99w1
Exhibit 99.1
| 2006 10-K Investor Summary |
| ^ These materials present tables and other information about Fannie Mae. including information
contained in Fannie Mae’s Annual Report on Form 10-K for the year’ ended December 31,2006. These
materials should be reviewed together with the 2006 Form 10-K, a copy of which is available on the
company’s Web site at www.fanniemae.com under the “Investor Relations” section of the Web site. |
| ^ More complete information about Fannie Mae, its business, business segments, financial condition
and results of operations are contained in the 2006 Form 10-K, which also includes more detailed
explanations and additional information relating to the information contained in this presentation.
Footnotes to the included tables have been omitted. |
| ^ Statements in these materials, including those relating to our expected future credit losses,
market share and administrative expenses, as well as the quality of pur mortgage credit book of
business and its credit characteristics, may be considered forward-looking statements within the
meaning of the federal securities laws, and Fannie Mae’s future performance may differ materially
from what is indicated in any forward-looking statements. Information that could cause actual
results to differ materially from these statements is detailed in the 2006 Form 10-K, including the
“Risk Factors” section. |
| ^ Continue to hit key milestones |
| · Continued momentum towards current filing status — on track to meet February 2008 goal |
| · 2004 10-K with Restated Historical Results-12/6/06 |
| ^ Demonstrated commitment to return capital to shareholders |
| • Two dividend increases in last eight months (to $0.50/share per quarter) |
| ^ Businesses well-positioned to take advantage of opportunities in evolving market |
| · Guaranty businesses momentum |
| · Increasing Single-Family market share |
| · Capital Markets’ continued support of MBS, and focus on long-term total return, while maintaining |
| compliance with an OFHEO-directed cap on our mortgage portfolio.
^ Risk measures demonstrate effectiveness of risk disciplines |
| · Credit characteristics of existing book remain strong, though we expect our credit loss ratio will
increase in 2007 to what we believe represents our normal historical range of 4-6 basis points
(e.g. 1990-1997) |
| · Duration gap continues in +/- one month range |
| ^ Building the foundation needed to support a dynamic, growing business |
| · Strong capital position |
| · Remediation of many controls issues |
| · Improving systems infrastructure |
| · Progress toward reducing 2007 administrative expenses and establishing a lower run-rate for 2008 |
| ^ 2006 results reflect a challenging market environment, as well as significant restatement and
remediation efforts. |
| · Net income available to common stockholders decreased to $3.5 billion, a $2.3 billion or 39%
decrease |
| · Administrative expenses increased from $2.1 billion to $3.1 billion |
| · Book of business grew 7% to $2.5 trillion, despite the competitive environment |
| · Credit-related expenses increased to $783 million from $428 million |
| · Average effective guaranty fee rate remained strong and stable, 21.8 bps in both 2006 and
2005 |
| · Core capital grew to $42.0 billion, $3.8 billion above our OFHEO-designated 30% capital
surplus requirement |
| · Estimated fair value of net assets (non-GAAP), before capital transactions, grew by $2.2 billion,
or 5% |
| · Interest rate risk and credit risk measures reflected a generally strong book, though the credit
oss ratio increased to 2.7 bps, closer to the higher historical levels |
| Source: Consolidated Statements of Income, Table 6, Table 23, Table 27, Table 34, Table 40 |
| For the Year Ended December 31.* 2006 vs. 2005 2005 vs. 2004 |
| (Dollars in millions) Net Revenues: |
| | Single-Family Credit Guaranty $ 6,073 $ 5,585 $ 5,007 $ 488 9% $ 578 12% | |
| Housing and Community Development 510 607 527 (97) (16) 80 15 |
| | Capital Markets 5.202 10.764 16.666 (5.562) (52) (5.902) 05) | |
| Total $ 11.785 $ 16.956 $ 22.200 $ (5.171) (30)% $ (5.244) (24)% |
| Single-Family Credit Guaranty $ 2,044 $ 2,623 $ 2,396 $ (579) (22)% $ 227 9% |
| Housing and Community Development 338 503 425 (165) (33) 78 18 |
| Capital Markets 1.677 3.221 2.146 (1.544) (48) 1.075 _5_0_ |
| | Total S 4.059 S 6.347 S 4.967 S (2.288) (36)% S 1.380 28%~| |
| ^ Net Income decreased to $4.1 billion, a $2.3 billion or 36% decrease from 2005 levels. |
| ^ Single-Family net revenues increased to $6.1 billion, up 9%. Net income declined to $2.0 billion,
down 22% from 2005. Key
drivers included higher losses on certain guaranty contracts, higher administrative expenses, and
higher credit expenses,
offset partially by higher guaranty fee income, and fee and other income. ^ Net income for the HCD
business segment decreased by $165 million or 33% in 2006 from 2005 resulting from an increase in
administrative expenses and credit enhancement expense and a decline in net revenues, which were
partially offset by
increased investment tax credits from HCD’s Low Income Tax Credit investments. ^ Our Capital
Markets business generated $1.7 billion in net income, down 48%, as lower net interest income and
higher
administrative expenses were partially offset by declines in derivative fair value losses, and
declines in investment losses. |
| Source: Consolidated Statements of Income, Table 11 * Reflects changes made to 2005 and 2004
segment presentation to correct allocation methodologies. |
| For the Year Ended December 31.2006* |
| Credit Guaranty HCD Markets Total |
| Net interest income (expense) $ 926 $ (331) $ 6,157 $ 6,752 |
| Guaranty fee income (expense) 4,785 486 (1,097) 4,174 |
| Losses on certain guaranty contracts (431) (8) — (439) |
| Investment gains (losses), net 97 — (780) (683) |
| Derivatives fair value losses, net — — (15522) (1,522) |
| Debt extinguishment gains, net — — 201 201 |
| Losses from partnership investments — (865) — (865) |
| Fee and other income 362 355 142 859 |
| Non-interest income (loss) 4,813 (32) (3,056) 1,725 |
| Provision for credit losses 577 12 — 589 |
| Restatement and related regulatory expenses 499 202 362 1,063 |
| Other expenses 1,530 528 554 2,612 |
| Income (loss) before federal income taxes and extraordinary gains 3,133 (1,105) 2,185 4,213 |
| Provision (benefit) for federal income taxes 1,089 (1,443) 520 166 |
| Income before extraordinary gains 2,044 338 1,665 4,047 |
| Extraordinary gains, net of tax effect — — 12 12 |
| 2006 Net income $ 2,044 $ 338 $ 1,677 $ 4,059 |
| 2005 Net income $ 2,623 $ 503 $ 3,221 $ 6,347 |
| 2004 Net income $ 2,396 $ 425 $ 2,146 $ 4,967 |
| .___Single-Family Credit Guaranty \ HCD _. .___Capital Markets . |
| ° 2004 2005 2006 | I ° 2004 2005 2006 I | 2004 2005 2006 I |
| Source: Notes to Consolidated Financial Statements — Footnote 15 * Reflects changes made to 2005
and 2004 segment presentation to correct allocation methodologies. * |
| For the Year Ended December 31,
Dollars in millions, except per share amounts 2006 2005 2004 |
| Net interest income $ 6,752 $ 11,505 $ 18,081 |
| Derivatives fair value losses, net (1,522) (4,196) (12,256) |
| Guaranty fee income 4,174 3,925 3,715 |
| Losses on certain guaranty contracts (439) (146) (HI) |
| Fee and other income 859 1,526 404 |
| Investment losses, net (683) (1,334) (362) |
| Debt extinguishment gains (losses), net 201 (68) (152) |
| Losses from partnership investments (865) (849) (702) |
| Administrative expense (3,076) (2,115) (1,656) |
| Provision for credit losses (589) (441) (352) |
| Foreclosed property expense (income) (194) 13 (11) |
| Other non-interest expense (405) (249) (599) |
| Provision for federal income taxes (166) (1,277) (1,024) |
| Extraordinary gains (losses), net of tax effect 12 53 (8) |
| Netincome 4,059 6,347 4,967 |
| Diluted earnings per share $3-65 $6.01 $4.94 |
| I Cumulative Net Income, 2004-2006 $15,373 |
| Source: Consolidated Statements of Income ° |
| Ratios: 2006 2005 2004 2003 2002 |
| Return on assets ratio 0.42% 0.63% 0.47% 0.82% 0.44% |
| Return on equity ratio 11.3 19.5 16.6 27.6 15.2 |
| Equity to assets ratio 4.8 4.2 3.5 3.3 3.2 |
| Dividend payout ratio 32.4 17.2 42.1 20.8 34.5 |
| Average effective guaranty fee rate 21.8bp 21.8bp 21.4 bp 21.6bp 19.3 bp |
| Credit loss ratio (in basis points) 2.7 bp 1.9 bp 1.0 bp 0.9 bp 0.8 bp |
| Source: Item 6: Selected Financial Information |
| —i^j Total Stockholders’ Equity |—i p^; 1 Total Assets] |
| ° 2002 2003 2004 2005^ 2006^]^^ 3<$ ^Jg ^j J..I^..^ 2004
2005 2006 |
| Total assets 843,936 834,168 1,020,934 1,022,275 904,739 |
| Short-term debt 165,810 173,186 320,280 343,662 293,538 |
| Long-term debt 601,236 590,824 632,831 617,618 547,755 |
| Total liabilities 802,294 794,745 981,956 990,002 872,840 |
| Preferred stock 9,108 9,108 9,108 4,108 2,678 |
| Total stockholders’equity 41,506 39,302 38,902 32,268 31,899 |
| Core capital $ 41,950 $ 39,433 $ 34,514 $ 26,953 $ 20,431 |
| Total capital 42,703 40,091 35,196 27,487 20,831 |
| Mortgage Credit Book of Business Data: |
| Mortgage portfolio $ 728,932 $ 737,889 $ 917,209 $ 908,868 $ 799,779 |
| Fannie Mae MBS held by third parties 1,777,550 1,598,918 1,408,047 1,300,520 1,040,439 |
| Other guarantees 19,747 19,152 14,825 13,168 12,027 |
| Mortgage credit book of business $7. S7.fi 7.7.9 $7355959 $7340081 $777755fi $1 857.745 |
| $mm Mortgage Credit Book of Business] I $mm ~| Core Capital
° 2002 2003 2004 2005 20“06~ | I ° 2002 2003 2004 2005 2006 |
| Source: Item 6: Selected Financial Information |
| For the Year Ended December 31, |
Average Interest Average Average Interest Average Average Interest Average
Balance Income/ Rates Balance Income/ Rates Balance Income/ Rates |
| Expense Earned/Paid Expense Earned/Paid Expense Earned/Paid |
| Mortgage loans $ 376,016 $ 20,804 5.53% $ 384,869 $ 20,688 5.38% $ 400,603 $ 21,390 5.34% |
| Mortgage securities 356,872 19,313 5.41 443,270 22,163 5.00 514,529 25,302 4.92 |
| Non-mortgage securities 45,138 2,734 6.06 41,369 1,590 3.84 46,440 1,009 2.17 |
| Federal funds sold and securities |
| purchased under agreements
to resell 13,376 641 4.79 6,415 299 4.66 8,308 84 1.01 |
| Advances to lenders 5.365 135 2.52 4.468 104 2.33 4.773 33 0.69
| Total interest-earning assets] | $ 796.767 | S 43.627 5.48% | S 880.391 | S 44.844 5.09% S
974.653 S 47.818 4.91% |
| Interest-bearing liabilities: |
| Short-term debt $164,566 $7,724 4.69% $246,733 $6,535 2.65% $331,971 $4,380 1.32% |
| Long-term debt 604,555 29,139 4.82 611,827 26,777 4.38 625,225 25,338 4.05 |
| Federal funds purchased and securities sold under agreements
torepurchase 320 12 3.75 1.552 27 1.74 3.037 19 0.63 |
| Total interest-bearing liabilities $ 769.441 $ 36.875 4.79% $860.112 $ 33.339 3.88% $ 960.233 $ |
| Impact of net non-interest |
| bearing funding $ 27.326 0.16% $ 20.279 0.10% $ 14.420 0.05%
Net interest income/net . . . . |
| | interest yield | $ 6.752 | | 0.85% | $ 11.505 1.31% $ 18.081 1.86%
Kev Drivers11 ^ Higher debt costs due to flattening of the yield curve |
| ^ Decrease in average portfolio size |
| As of December 31,
Money spent to 2006 2005 2004
Purchase (Dollars in millions) |
| °Ptlons Beginning net derivative asset $ 4,372 $ 5,432 $ 3,988 |
| —I— Effect of cash payments: |
| I -| > Fair value at inception of contracts entered into during the period (7) 846 2,998 |
| Money SDent to -J> Fair value at date of termination of contracts settled during the period^
(106) 879 4,129 |
| terminate Periodic net cash contractual interest payments 1.066 1.632 6.526
derivatives Total cash payments 953 3.357 13.653
Income statement impact of recognized amounts: |
| ^ Periodic net contractual interest expense accruals on interest rate swaps (HI) (1,325)
(4,981) |
| . C Net change in fair value during the period (1.489) (3.092) (7.228)
Netaccrued Derivatives fair value losses, net (1.600) (4.417) (12.209)
interest on Ending net derivative asset $ 3.725 $ 4.372 $ 5.432
interest rate
swaps Risk management derivatives fair value gains (losses) attributable to: |
| Net contractual interest expense accruals on interest rate swaps $ (111) $ (1,325) $ (4,981) |
| Net change in fair value of terminated derivative contracts from end of prior
Reduction year to date of termination (176) (1,434) (4,096)
(jue to; Net change in fair value of outstanding derivative contracts, including
derivative contracts entered into during the period . (±£W) ^(^£&/ (3.132)
· Upward trend in | Risk management derivatives fair value losses, net ^S (1.600TX^ (4.417)^8
(12.209)
and reduction in I t
contractual
interest Original
expense, Original Weighted Remaining
partially offset Premium Average Life Weighted
by lower implied Payments to Expiration Average Life
interest rate (Dollars in Millions)
V0at ty Outstanding options as of December 31,2005 $ 11,658 6.5 years 4.3 years
Purchases
Exercises (1,811)
Supplemental Terminations (278)
disclosures ^ . ,. ; ‘
on options book"1 Expirations (800L
Outstanding options as of December 31,2006 $ 8,769 9.2years 5.7years
<1> Primarily represents cash paid (received) upon termination of derivative
contracts. The original fair value at termination and related weighted
average life in years at termination for those contracts with original scheduled maturities during
or after 2006,2005, and 2004 were $13.9 billion and ,,
Source: Table 9, Table 19, Table 20 9.7 years; $14.9 billion and 7.6 years; and $15.3 billion and
6.6 years respectively. |
| For the Year Ended December 31, |
| 2006 2005 Variance
Amount Rate Amount Rate Amount Rate
(in millions) (inbps) (in millions) (inbps) (in millions) (inbps)
Guaranty fee income/average effective
guaranty fee rate, excluding buy-up
impairment $ 4,212 22.0 $ 3,974 22.1 $ 238 (0.1)
Buy-up impairment (38) (0.2) (49) (0.3) jj (H
Guaranty fee income/average effective ___
guaranty fee rate $ 4,174 ^21.8^ $ 3,925 ^21.8^ $ 249 ^7o.O)^
Average outstanding Fannie Mae MBS
and other guaranties $1,915,457 $1,797,547 $117,910
Fannie Mae MBS issues 481,704 510,138 (28,434)
Source: Table 6 |
| Credit Losses(1VBook of Business Single-Family Serious Delinquency
Rate<2>
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Bps Percentage
- - ‘ Credit Enhanced
0 m ^ Non-Credit Enhanced _^^^W
2.5 -f— ^ 1 •* Total n^XXy
^T * Credit Loss Ratio
* Excluding Impact
0.0 0.00
FY 2003 FY 2004 FY 2005 FY 2006 YE 2001 YE 2002 YE 2003 YE 2004 YE 2005 YE 2006
(1) Credit losses include foreclosed property expenses plus net charge-offs. (2) Greater than 90
days past due
(2) Under SOP 03-3, we are required to record as a charge-off the excess of the
acquisition price over fair value of delinquent loans we purchase from
Fannie Mae MBS trusts.
^ Higher credit loss ratio primarily due to continued weakness in the Midwest region of the U.S. as
well as due to overall weaker home price appreciation.
Source: Table 40 Source: Table 37 |
| For the Year Ended December 31,
(Dollars in millions) 2006 2005 2004
Salaries and Employee Benefits $1,219 $ 959 $ 892
Professional Services 1,393 792 435
Occupancy Expenses 263 221 185
Other Administrative Expenses 201 143 144
Total Administrative Expenses $ 3.076 $2.115 $ 1.656
Increased due to costs associated with our efforts to return to timely financial
reporting and an increase in our
ongoing daily operations costs.
Source: Consolidated Statements of Income |
| For the Year Ended December 31,
2006 2005 2004
(Dollars in millions)
Other-than-temporary impairment on AFS securities $(853) $(1,246) $(389)
Lower-of-cost-or-market adjustments on HFS loans (47) (114) (HO)
Gains (losses) on Fannie Mae portfolio securitizations, net 152 259 (34)
Gains on sale of investment securities, net 106 225 185
Unrealized gains (losses) on trading securities, net 8 (415) 24
Other investment losses, net (49) (43) (38)
Investment losses, net $(683) $(1.334) $(362)
Source: Table 8 |
| For the Year Ended December 31,
2006 2005 2004
(Dollars in millions)
Transaction fees $ 124 $ 136 $ 152
Technology fees 216 223 214
Multifamily fees 292 432 244
Foreign currency exchange gains (losses) (230) 625 (304)
Other 457 110 98
Fee and other income $ 859 $1,526 $ 404
>- Fee and other income declined in 2006 primarily due to foreign currency exchange
losses of $230 million in 2006 vs. gains of $625 million in 2005. >- Our foreign currency
exchange gains (losses) are offset by corresponding net losses
(gains) on foreign currency swaps, which are recognized as a component of “Derivatives
fair value gains (losses), net.”
Source: Table 7 |
| For the Year Ended December 31, (Dollars in millions)
2006 2005 2004
Statutory corporate tax rate 35.0% 35.0% 35.0%
Tax exempt interest and dividends-received deductions... (6.0) (4.0) (5.4)
Equity investments in affordable housing projects (25.0) (13.1) (14.5)
Penalty — - 2.4
Other (0.1) (1.0) (0.3)
Effective Tax Rate 3.9% 16.9% 17.2%
Current income tax expense $ 745 $ 874 $ 2,651
Deferred income tax (benefit) expense (579) 403 (1,627)
Provision for federal income taxes $ 166 $1,277 $ 1,024
^ Variance in our effective tax rate over the past three years is primarily due to the combined
effect of fluctuations in our pre-tax income, which affects the relative tax benefit of tax-exempt
income and tax credits, and an increase in the dollar amount of tax credits related to our equity
investments in affordable housing.
Source: Footnote 11 |
| (Dollars in millions) 2006 2005
Balance as of January 1 $42,199 $40,094
Capital transactions:
Common dividends, common share repurchases and issuances, net (1,030) (943)
Preferred dividends (511) (486)
Capital transactions, net (1,541) (1,429)
Change in estimated fair value of net assets, excluding capital transactions... 2,243 3,534
Increase in estimated fair value of net assets, net 702 2,105
I Balance as of December 31 $42.901 $42.199 I
I Estimated Fair value of net assets, has increased by $0.7 billion, $2.2 billion net of capital
transactions
Kev Drivers11 ^ Payments of $1.7 billion of dividends to holders of common and preferred
stock |
| ^ ^ A decrease in the estimated fair value of our net guaranty assets of approximately $1.4
billion |
| driven primarily by the slowdown in home price appreciation that occurred in 2006
^ A widening in OAS on securities held by us resulted in a decrease in fair value of our mortgage
assets. ^ A decline in agency debt OAS relative to LIBOR resulted in an increase in the fair value
of our
liabilities, that further decreased the overall fair value of our net assets. ^ More than
offsetting the decline in fair value of net assets due to changes in spreads was an
increase in fair value due to a decrease in implied volatility.
The estimated fair value of our net assets (non-GAAP) represents the estimated fair value of total
assets less the estimated fair value of Source: Table 23 total liabilities. We reconcile the
estimated fair value of our net assets (non-GAAP) to total stockholders’ equity (GAAP) in the
Appendix. |
| ^ The following sets forth a reconciliation of the estimated fair value of our net assets
(non-GAAP) to total stockholders’ equity (GAAP). A more detailed reconciliation is contained in
Table 21 of the 2006 Form 10-K.
(Dollars in millions) As of December 31.
2006 2005
Estimated Fair Value of Net Assets,
net of tax effect (non-GAAP) $ 42,901 $ 42,199
Fair value adjustments (1.395^ (2.897) ®
Total Stockholders’Equity (GAAP) $41.506 $ 39.302
(1) Represents fair value increase of $1.6 billion to total assets of $843.9 billion less a fair
value increase of
$0.2 billion to total liabilities of $802.3 billion.
(2) Represents fair value increase of $1.9 billion to total assets of $834.2 billion, plus a fair
value decrease of
$1.0 billion to total liabilities of $794.7 billion. |
