Freddie Mac 2015 Annual Report Download - page 24

Management's Discussion and Analysis Consolidated Results of Operations | Net Interest Income
Freddie Mac 2015 Form 10-K 22
COMPONENTS OF NET INTEREST INCOME
The table below presents the components of net interest income.
Year Ended December 31, Change 2015-2014 Change 2014-2013
(in millions) 2015 2014 2013 $ % $ %
Contractual net interest income:
Management and guarantee fee income $ 2,722 $ 2,399 $ 2,111 $ 323 13 % $ 288 14 %
Management and guarantee fee income
related to the Temporary Payroll Tax Cut
Continuation Act of 2011 957 759 519 198 26 % 240 46 %
Other contractual net interest income 8,106 9,070 11,484 (964) (11)% (2,414) (21)%
Total contractual net interest income 11,785 12,228 14,114 (443) (4)% (1,886) (13)%
Net amortization - loans and debt securities of
consolidated trusts 2,883 1,913 2,791 970 51 % (878) (31)%
Net amortization - other assets and debt 506 423 18 83 20 % 405 2,250 %
Expense related to derivatives (228) (301) (455) 73 (24)% 154 (34)%
Net interest income $ 14,946 $14,263 $ 16,468 $ 683 5 % $ (2,205) (13)%
Key Drivers:
• Management and guarantee fee income increased during 2015, compared to 2014 and 2013, as
the rates and volume of our guarantee businesses increased. Specifically, management and
guarantee fee rates received on new business are higher than the rates received on older vintages
that continue to pay-down. Furthermore, the size of our single-family credit guarantee portfolio
continues to grow as we continue to securitize single-family loans into PCs. The increase in
management and guarantee fee income, combined with a decline in our other contractual net interest
income, resulted in management and guarantee fee income becoming a larger component of our
contractual net interest income. We expect this trend to continue in the future. See the Single-family
Guarantee segment's "Business Results" section in "Our Business Segments" for additional
discussion.
• Other contractual net interest income declined in 2015 and 2014, primarily due to the reduction in
the balance of our mortgage-related investments portfolio, as we continue to manage the size and
composition of this portfolio pursuant to the limits established by the Purchase Agreement and by
FHFA. Although we reinvested a portion of the proceeds received from pay-downs and dispositions,
the new mortgage-related assets we acquired have lower yields as a result of a lower interest rate
environment. We expect our other contractual net interest income to continue to decline in the near
future as we reduce our mortgage-related investments portfolio. See "Conservatorship and Related
Matters - Limits on Our Mortgage-Related Investments Portfolio and Indebtedness" for additional
discussion of the limits on the mortgage-related investments portfolio.
• Net amortization of loans and debt securities of consolidated trusts increased in 2015 compared
to 2014 due to an increase in the amortization of upfront fees and basis adjustments on debt
securities of consolidated trusts. This increase was primarily driven by higher prepayment rates on
single-family loans in 2015 compared to 2014. Conversely, net amortization of loans and debt
securities of consolidated trusts was lower in 2014 compared to 2013, due to slower prepayment
rates on single-family loans and timing differences between the amortization of the loan and debt
securities basis adjustments.