Freddie Mac 2014 Annual Report Download - page 61

56 Freddie Mac
(2) Loan fees, primarily consisting of delivery fees, included in interest income for mortgage loans held by consolidated trusts were $1.4 billion, $1.2 billion, and $929 million
for 2014, 2013, and 2012, respectively.
(3) Loan fees, primarily consisting of delivery fees and multifamily prepayment fees, included in unsecuritized mortgage loans interest income were $373 million, $294 million,
and $446 million for 2014, 2013, and 2012, respectively.
(4) Represents changes in fair value of derivatives in closed cash flow hedge relationships that were previously deferred in AOCI and have been reclassified to earnings as the
interest expense associated with the hedged forecasted issuance of debt affects earnings.
(5) Rate and volume changes are calculated on the individual financial statement line item level. Combined rate/volume changes were allocated to the individual rate and
volume change based on their relative size.
The table below summarizes components of our net interest income.
Table 10 — Net Interest Income
Year Ended December 31,
2014 2013 2012
(in millions)
Contractual amounts of net interest income(1) $ 12,229 $ 14,114 $ 16,162
Amortization income (expense), net:(2)
Accretion of impairments on available-for-sale securities 798 521 214
Asset-related amortization income (expense), net:
Mortgage loans held by consolidated trusts (4,110) (4,935) (4,536)
Unsecuritized mortgage loans 235 266 156
Mortgage-related securities (326) (168) (59)
Other assets (73) (282) (281)
Asset-related amortization expense, net (4,274) (5,119) (4,720)
Debt-related amortization income (expense), net:
Debt securities of consolidated trusts 6,022 7,726 7,112
Other debt securities (211) (319) (552)
Debt-related amortization income, net 5,811 7,407 6,560
Total amortization income, net 2,335 2,809 2,054
Expense related to derivatives(3) (301) (455) (605)
Net interest income $ 14,263 $ 16,468 $ 17,611
(1) Includes the reversal of interest income accrued, net of interest received on a cash basis, related to mortgage loans that are on non-accrual status.
(2) Represents amortization related to premiums, discounts, deferred fees and other adjustments to the carrying value of our financial instruments, and the
reclassification of previously deferred balances from AOCI for certain derivatives in closed cash flow hedge relationships related to individual debt
issuances and mortgage purchase transactions.
(3) Represents changes in fair value of derivatives in closed cash flow hedge relationships that were previously deferred in AOCI and have been
reclassified to earnings as the associated hedged forecasted issuance of debt affects earnings.
Net interest income decreased by $2.2 billion to $14.3 billion for 2014 compared to $16.5 billion for 2013. Net interest
yield decreased by eight basis points to 74 basis points for 2014 compared to 82 basis points for 2013. The decrease in net
interest income and net interest yield was primarily due to the reduction in the balance of higher-yielding mortgage-related
assets in our mortgage-related investments portfolio due to continued liquidations, partially offset by lower funding costs. In
addition, the costs of funding the senior preferred stock dividend payments to Treasury that resulted from non-cash increases in
net worth (e.g., release of the valuation allowance against the net deferred tax assets) had a negative impact on net interest
yield.
The percentage of our net interest income derived from guarantee fees has increased in recent periods. We estimate that
approximately one-third of our net interest income for 2014 was derived from guarantee fees. As the size of our mortgage-
related investments portfolio continues to decline, we expect that guarantee fees will account for an increasing portion of our
net interest income.
Net interest income decreased by $1.1 billion to $16.5 billion for 2013 compared to $17.6 billion for 2012. Net interest
yield decreased by two basis points to 82 basis points for 2013 compared to 84 basis points for 2012. The decrease in net
interest income was primarily due to the reduction in the balance of higher-yielding mortgage-related assets due to continued
liquidations. The decrease in net interest yield was primarily due to the reduction in higher-yielding mortgage-related assets,
partially offset by the benefit of lower funding costs from the replacement of debt at lower rates.
Beginning in April 2012, net interest income includes the legislated 10 basis point increase in guarantee fees, which is
remitted to Treasury as part of the Temporary Payroll Tax Cut Continuation Act of 2011. Net interest income includes $759
million, $519 million and $105 million for 2014, 2013 and 2012, respectively, related to this increase in guarantee fees.
Our net interest income will continue to be negatively affected by the objectives set for us under our charter and the
conservatorship, the terms of the Purchase Agreement and restrictions imposed by FHFA. For example, our mortgage-related
investments portfolio is subject to a cap that decreases by 15% each year until the cap reaches $250 billion. The decline in the
balance of this portfolio will cause a reduction in our interest income from this portfolio over time. For more information on the
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