Freddie Mac 2015 Annual Report Download - page 251

Financial Statements Notes to the Consolidated Financial Statements | Note 6
Freddie Mac 2015 Form 10-K 249
NOTE 6: INVESTMENTS IN SECURITIES
The following table summarizes the carrying value of our investments in securities by classification as of
December 31, 2015 and 2014.
(in millions) December 31, 2015 December 31, 2014
Trading securities $ 39,278 $30,437
Available-for-sale securities 74,937 106,550
Total $ 114,215 $ 136,987
We currently classify and account for our securities as either available-for-sale or trading. As of
December 31, 2015 and 2014, we did not classify any securities as held-to-maturity, although we may
elect to do so in the future. Securities classified as available-for-sale and trading are reported at fair value
with changes in fair value included in AOCI, net of income taxes and other gains (losses) on investment
securities recognized in earnings, respectively. See Note 14 for more information on how we determine
the fair value of securities.
We record purchases and sales of securities on the trade date when the related forward commitments are
exempt from the accounting guidance for derivatives and hedge accounting. Alternatively, we record
purchases and sales of securities on the expected settlement date, with a corresponding derivative
recorded on the trade date, when the related forward commitments are not exempt from the accounting
guidance for derivatives and hedge accounting.
We include interest on securities in our consolidated statements of comprehensive income. For most of
our investments in securities, interest income is recognized using the effective interest method. Deferred
items, including premiums, discounts, and other basis adjustments, are amortized into interest income
over the contractual lives of the securities.
For certain investments in securities, interest income is recognized using the prospective effective interest
method. We apply this method to securities that:
• Can contractually be prepaid or otherwise settled in such a way that we may not recover substantially
all of our recorded investment;
• Are not of high credit quality at acquisition; or
• Have been determined to be other-than-temporarily impaired.
Under this method, we recognize as interest income, over the life of the securities, the excess of the cash
flows expected to be collected over the securities' carrying value. We update our estimates of expected
cash flows periodically and recognize changes in the calculated effective interest rate on a prospective
basis.
For securities classified as trading or available-for-sale, we classify the cash flows as investing activities
because we hold these securities for investment purposes. In cases where the transfer of a security
represents a secured borrowing, we classify the related cash flows as financing activities.