Fannie Mae profits jump

Fannie Mae, the nation’s largest mortgage buyer, reported increased earnings for the fourth quarter and 2003 as a whole, driven by strong growth in net interest income and a decline in mark-to-market losses on purchased loans.

The finance giant reported net income of $7.91 billion for 2003, up 71.1 percent over reported net income of $4.62 billion in 2002. Diluted earnings per share were $7.91 in 2003, up 75 percent from $4.52 in 2002.

For the fourth quarter of 2003 Fannie Mae’s reported net income was $2.2 billion, or $2.21 a share, compared with $952 million, or $0.94 a share, for the fourth quarter of 2002.

Core business earnings for 2003 totaled $7.31 billion, a 14.3 percent increase over core business earnings of $6.4 billion in 2002. Core business diluted EPS for 2003 were $7.29, or 15.7 percent above 2002.

Core business earnings for the fourth quarter of 2003 totaled $1.78 billion, or $1.77 a share, compared with $1.67 billion, or $1.66 a share, for the fourth quarter of 2002.

Fannie Mae’s Vice Chair Timothy Howard said, “The strength of our full year financial results is especially gratifying given the extreme financial market volatility over the past year, with interest rates declining to 45-year lows in mid-June before rebounding sharply over the balance of the summer. As a consequence of this volatility, the growth rates of Fannie Mae’s two businesses diverged substantially, and showed significant variability on a quarterly basis.”

Net interest income for 2003 was $13.6 billion, up 28.4 percent over 2002. This increase primarily resulted from a 13.6 percent rise in the average net investment balance and a 16 basis-point increase in the net interest yield. Net interest income for the fourth quarter of 2003 was $3.21 billion, a 6.6 percent increase compared with net interest income of $3 billion for the fourth quarter of 2002.

Fannie Mae recorded $2.17 billion of unrealized mark-to-market losses on purchased options during 2003, compared with $4.55 billion in unrealized mark-to-market losses in 2002. In the fourth quarter of 2003, the company recorded $133 million of mark-to-market losses on purchased options compared with $1.88 billion in the fourth quarter of 2002. Unrealized losses recorded for both the full year and fourth quarter periods were due primarily to changes in the fair value of the time value of purchased options that resulted from interest rate movements and the normal seasoning of our options.

Fannie Mae is a publicly traded company, chartered by Congress to ensure a steady flow of funds for the nation’s home buyers. Fannie Mae and sister company Freddie Mac own nearly half the nation’s mortgage debt. The two companies package home loans into securities and sell them to investors and they invest in mortgages and securities.