#1. FEDERAL NATIONAL MORTGAGE ASSOCIATION
3900 Wisconsin Ave. NW Washington, D.C. 20016 ASSETS: $99.09 billion PROFITS: $36.9 million EARNINGS PER SHARE: 52 cents DIVIDEND: 16 cents STOCKHOLDERS' EQUITY: $1.3 billion RETURN ON EQUITY: 2.9 percent EXCHANGE: NYSE EMPLOYES: 2,000 TOP EXECUTIVES: David O. Maxwell, chairman and chief executive officer; Mark J. Riedy, president and chief operating officer. FOUNDED: 1938
DESCRIPTION: Fannie Mae is a congressionally chartered stock corporation that forms a secondary market for residential mortgages by buying loans from primary lenders such as thrift institutions and mortgage bankers. The process recycles funds back to those lenders, allowing them to make more loans. Fannie Mae owns about one of every 10 U.S. home mortgages.
DEVELOPMENTS: Fannie Mae, like most other institutions in the real estate finance industry, has benefited greatly from the fall of interest rates in the last year. For the first part of the 1980s, when rates were high, the firm suffered because it had to pay much more for capital than it was getting on many of the long-term, fixed-rate mortgages in its portfolio.
But lower borrowing costs in 1985 more than made up for the slight decline in yield on Fannie Mae's mortgages -- from 10.93 percent to 10.81 -- and produced a positive spread on its portfolio in the fourth quarter, the first extended period with a positive spread since 1979.
During the year, the company continued to restructure its mortgage portfolio in an effort to protect against future rises in interest rates. The restructuring included lengthening Fannie Mae's debt and issuing an increased amount of mortgage-backed securities. Mortgage-backed securities generally provide future income that is immune to interest-rate fluctuations, as well as generating increasing amounts of fee income. Fannie Mae issued about $24 million in mortgage-backed securities, $10 billion more than in the previous year.
Despite these positive developments, Fannie Mae continued to suffer from the high rate of foreclosures in the housing industry, and it charged off $143 million as a result of losses on conventional loans (excluding mortgage-backed securities and FHA/VA loans). As a result of the bad loans, Fannie Mae doubled its staff working on the management and disposition of properties. It also tightened its underwriting guidelines, becoming more selective about the types of loans it is willing to buy.
A final area of concern for Fannie Mae executives over the course of the year was the collapse of the EPIC real estate empire. Fannie Mae is one of EPIC's largest creditors -- with slightly more than $100 million in loans on its books -- and its chairman, Maxwell, headed a committee of creditors that developed a reorganization plan for EPIC. #2. FEDERAL HOME LOAN MORTGAGE CORP.
1776 G St. NW Washington, D.C. 20013 ASSETS: $16.4 billion PROFITS: $208 million EARNINGS PER SHARE: $197.40 DIVIDEND: $24.90 STOCKHOLDERS' EQUITY: $779 million RETURN ON EQUITY: 30 percent EXCHANGE: NYSE EMPLOYES: 999 TOP EXECUTIVE: Leland C. Brendsel, acting president and chief executive officer. FOUNDED: 1970
DESCRIPTION: Freddie Mac is a congressionally chartered corporation whose stock is owned by member savings institutions through common stock held for them by the 12 Federal Home Loan Banks. It operates a secondary market, purchasing loans from lenders and selling securities based upon the loans.
DEVELOPMENTS: Last year, for the first time, Freddie Mac was subject to federal corporate income taxes. For comparative purposes, net income for fiscal 1984 has been recalculated assuming a 46 percent corporate tax rate applicable to earnings in that year. On the basis of such pro-forma restatement, Freddie Mac's income for fiscal 1984 is $144 million rather than the $264.4 million reported last year before the imposition of federal taxes.
On the basis of the recalculation, Freddie Mac's after-tax income in the fiscal year ended Dec. 31 rose 44 percent.
The company purchased more than $44 billion in mortgages, a record high amount and a 100 percent increase over the level of mortgage purchasing in the previous fiscal year. Freddie Mac also issued new securities at a record rate last year. More than $15.3 billion in collateralized mortgage obligations and $38.1 billion in participation certificates were bundled and sold. Collateralized mortgage obligations (CMOs) are a class of mortgage-backed security similar to a bond that offers different classes of payment. A participation certificate is a type of modified "pass-through" security that represents ownership in a package of residential mortgages.
Last September, Freddie Mac made its first public offering of mortgage pass-through securities in a foreign market, delivering $100 million in mortgage-backed securities to international investors in London. The move is designed to attract foreign capital to the U.S. housing market. #3. STUDENT LOAN MARKETING ASSOCIATION
1050 Thomas Jefferson St. NW Washington, D.C. 20007 ASSETS: $14.5 billion PROFITS: $123.3 million EARNINGS PER SHARE: $2.45 DIVIDEND: 18 cents STOCKHOLDERS' EQUITY: $675.6 million RETURN ON EQUITY: 28.4 percent EXCHANGE: NYSE EMPLOYES: 819 TOP EXECUTIVES: Edward A. McCabe, chairman; Edward A. Fox, president and chief executive officer. FOUNDED: 1973
DESCRIPTION: Sallie Mae is a federally chartered, stockholder-owned corporation that provides, through its secondary market operations, the nation's largest single source of financing for government-insured student loans. It also makes a limited number of education-related, privately insured loans.
DEVELOPMENTS: Assets and net income each rose 24 percent last year, and dividends were increased 50 percent.
Sallie Mae tapped the international debt and equity markets for the first time in 1985. In this country, it pioneered in offering the first indexed currency option note. These and other sources enabled Sallie Mae to provide $3.6 billion in new funds for the federally insured student-loan market, a one-third increase over the previous year.
It ended its requirement that banks and colleges doing business with Sallie Mae buy its stock in order to encourage more of them to do business with the company.
The corporation also began a pilot program of making direct, privately insured loans to parents of college students to supplement government-guaranteed student loans. It extended its loan plan for graduate students in high-cost professional degree programs to 15 states and the District.
Regional marketing offices were opened this year in Boston, Chicago, Dallas and San Francisco, and a fifth is planned for Kansas City. #4. USF&G CORP.
100 Light St. Baltimore, Md. 21202 ASSETS: $7.7 billion LOSS: $108 million LOSS PER SHARE: $1.81 DIVIDEND: $2.32 STOCKHOLDERS' EQUITY: $1.2 billion RETURN ON EQUITY: NA EXCHANGE: NYSE EMPLOYES: 8,800 TOP EXECUTIVE: Jack Mosely, president chairman. FOUNDED: 1896
DESCRIPTION: USF&G is a major insurance carrier specializing in property, casualty and life insurance.
DEVELOPMENTS: Although USF&G initially reported a $4.3 million profit for fiscal 1984, the company announced a sweeping restatement of financial results on April 8 and reported a loss for that year of $64.3 million. At the same time, the company announced a loss of $108 million for the fiscal year ended Dec. 31.
The restatement of results and the poor performance for 1985 were caused by a need to increase reserves for property and casualty claims. This was accomplished by taking a $100 million charge in the final quarter of fiscal 1985 to make up the shortage.
Although such a step had been anticipated by security analysts following the firm, the 1985 loss was larger than expected. To improve its financial posture, USF&G recently has increased rates 30 to 50 percent on commercial property and casualty lines, according to a management spokesman. A decrease in rates and adverse claims experience from 1980 through 1985 had brought about a deterioration in income.
The company's reported revenue in the most recent fiscal year increased 33 percent to $3.556 billion. #5. FARM CREDIT BANKS OF BALTIMORE
P.O. Box 1555 Baltimore, Md. 21203 ASSETS: $3.4 billion PROFITS: $12.7 million EARNINGS PER SHARE: NA DIVIDEND: None STOCKHOLDERS' EQUITY: $474.9 million RETURN ON EQUITY: 2.7 percent EXCHANGE: NA EMPLOYES: 888 TOP EXECUTIVES: James C. Cisney, chairman; Gene L. Swackhamer, president and chief executive officer. FOUNDED: 1917
DESCRIPTION: The Farm Credit Banks of Baltimore, a group of three banks that loan money in the agricultural sector, are part of the nationwide Farm Credit System. A single management operates the banks, which are the Federal Land Bank of Baltimore, the Federal Intermediate Credit Bank of Baltimore and the Baltimore Bank for Cooperatives. All three banks are cooperatives themselves, with stock purchased by borrowers as a condition of receiving their loans.
The largest of the three, the Land Bank, generally makes long-term loans secured by rural property of at least 10 acres or perhaps by farm machinery or other assets. The loans are made and serviced by Land Bank Associations throughout the five states of the Baltimore district -- Pennsylvania, Maryland, West Virginia, Delaware and Virginia -- and Puerto Rico.
The Intermediate Credit Bank channels funds raised in national credit markets by the Farm Credit System through Production Credit Associations to farmers, fishermen and some farm-related businesses to meet annual production credit needs. The Bank for Cooperatives lends directly to agricultural and rural cooperatives.
DEVELOPMENTS: There are 12 districts in the Farm Credit System, with Baltimore among the smallest -- and among the healthiest. Some of the districts, particularly Omaha and Spokane, are in very serious financial trouble because of bad farm loans. Resources from more secure parts of the system are being used to keep the Omaha and Spokane banks afloat.
Last year, $13.6 million worth of assistance was provided by the Baltimore banks to those districts, and more will be required in 1986. Traditionally, the banks in each district, and even the local area associations -- each of which has its own separate board of directors -- have operated quite autonomously. The major exception has been the consolidated issuance of securities on behalf of the entire system to raise the money the banks and associations loaned. The securities are the joint obligation of all parts of the Farm Credit System.
In December, Congress approved a highly conditional line of credit for the system at the U.S. Treasury. One major condition was that before any money would be advanced to the system, it first had to tap all its own resources to meet its obligations. That probably means still larger transfers in the future from the Baltimore banks to other parts of the system.
The Baltimore banks are in good shape because of the diversified nature of agriculture in the district, with most borrowers being only part-time farmers or even just rural homeowners whose primary income is from nonfarm jobs. Also, the demand for recreational land by residents of the Baltimore and Washington metropolitan areas has helped keep land values high and Land Bank loans well collateralized.