Freddie Mac 2014 Annual Report Download - page 78

73 Freddie Mac
Segment Earnings for our Investments segment decreased by $11.4 billion to $4.5 billion in 2014 compared to $15.9
billion in 2013. The decrease in Segment Earnings in 2014 compared to 2013 was primarily due to: (a) derivative-related fair
value losses recorded during 2014 compared to gains in 2013; and (b) an entire year of tax expense in 2014 compared to a
partial year of tax expense following the release of the valuation allowance against our deferred tax assets in the second half of
2013.
During 2014, the UPB of the Investments segment mortgage investments portfolio decreased by 9%. We held $174.6
billion and $182.1 billion of agency securities, $44.2 billion and $64.5 billion of non-agency mortgage-related securities, and
$82.8 billion and $84.4 billion of single-family unsecuritized mortgage loans at December 31, 2014 and 2013, respectively. The
decline in UPB of agency securities was due mainly to liquidations. The decline in UPB of non-agency mortgage-related
securities was due mainly to liquidations and sales consistent with our efforts to reduce the amount of less liquid assets. The
decline in the UPB of single-family unsecuritized mortgage loans was primarily related to borrower remittances and
prepayments of mortgage loans, and the securitization of mortgage loans that we had purchased for cash (including the
securitization of reperforming loans and modified loans). See “CONSOLIDATED BALANCE SHEETS ANALYSIS —
Investments in Securities” and “— Mortgage Loans” for additional information regarding our mortgage-related securities and
mortgage loans.
Segment Earnings net interest income was $3.0 billion in 2014 compared to $3.5 billion in 2013. The decline in net
interest income resulted from continued reduction in the balance of mortgage-related assets.
Segment Earnings non-interest income (loss) was $3.3 billion in 2014 compared to $12.0 billion in 2013. The decline
during 2014 was primarily due to derivative-related fair value losses recorded during 2014 compared to derivative-related fair
value gains recorded during 2013.
Segment Earnings non-interest income includes income from settlements associated with our investments in certain non-
agency mortgage-related securities of $6.1 billion in 2014 compared to $5.5 billion during 2013. For information on the
settlements in 2014, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Non-Agency Mortgage-
Related Security Issuers.”
We incurred derivative gains (losses) for this segment of $(5.2) billion during 2014 compared to $5.5 billion during 2013.
The change to losses was primarily a result of the impact of a flattening of the yield curve as shorter-term interest rates
increased and longer-term interest rates declined during 2014, compared to an increase in longer-term interest rates during
2013. See “Non-Interest Income (Loss) — Derivative Gains (Losses)” for additional information on our derivatives.
Our Investments segment’s other comprehensive income was $2.0 billion during 2014 compared to $4.4 billion during
2013. The decrease in other comprehensive income during 2014 compared to 2013 was primarily due to lower fair value gains
on our non-agency mortgage-related securities as spreads tightened less during 2014 compared to 2013, partially offset by
lower fair value losses on agency securities as interest rates decreased in 2014. Other comprehensive income in all periods also
reflects the reversals of: (a) unrealized losses due to the recognition of other-than-temporary impairments in earnings; and (b)
unrealized gains and losses related to available-for-sale securities sold during the respective period.
2013 vs. 2012
Comprehensive income for our Investments segment increased by $8.9 billion to $20.3 billion in 2013 compared to
$11.4 billion in 2012, primarily due to higher Segment Earnings.
Segment Earnings for our Investments segment increased by $8.6 billion to $15.9 billion in 2013 compared to
$7.4 billion in 2012, primarily due to derivative-related gains in 2013.
During 2013, the UPB of the Investments segment mortgage investments portfolio decreased by 12%. We held
$182.1 billion and $208.1 billion of agency securities, $64.5 billion and $76.5 billion of non-agency mortgage-related
securities, and $84.4 billion and $91.4 billion of single-family unsecuritized mortgage loans at December 31, 2013 and 2012,
respectively. The decline in UPB of agency securities was due mainly to liquidations. The decline in UPB of non-agency
mortgage-related securities was due mainly to liquidations and sales. The decline in the UPB of single-family unsecuritized
mortgage loans was primarily related to prepayments of mortgage loans held and the securitization of mortgage loans that we
had purchased for cash, and includes the securitization of reperforming loans and modified loans, partially offset by the
addition of newly performing loans from the Single-family Guarantee segment.
Segment Earnings net interest income decreased by $2.2 billion and Segment Earnings net interest yield decreased by
37 basis points during 2013 compared to 2012. The primary drivers of the decreases were the reduction in the balance of
higher-yielding mortgage-related assets due to continued liquidations coupled with purchases at lower yields. These factors
were partially offset by lower funding costs primarily due to the replacement of debt at lower rates.
Segment Earnings non-interest income was $12.0 billion in 2013 compared to $128 million in 2012. The improvement
was primarily due to increases in other non-interest income and derivative gains and a decrease in net impairments of available-
for-sale securities recognized in earnings, partially offset by losses on mortgage loans.
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