Freddie Mac 2015 Annual Report Download - page 54

Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee
Freddie Mac 2015 Form 10-K 52
FINANCIAL RESULTS
The table below presents the components of the Segment Earnings and comprehensive income for our
Single-family Guarantee segment.
Year Ended December 31, Change 2015-2014 Change 2014-2013
(dollars in millions) 2015 2014 2013 $ % $ %
Net interest income (expense) $ (111) $ (111) $ 320 $ — — % $ (431) (135)%
Benefit (provision) for credit losses 2,030 (982)1,409 3,012 (307)% (2,391) (170)%
Non-interest income:
Management and guarantee fee income 5,406 4,397 4,397 1,009 23 % — — %
Other non-interest income (loss) (1,422) 712 1,162 (2,134) (300)% (450)(39)%
Total non-interest income 3,984 5,109 5,559 (1,125) (22)% (450) (8)%
Non-interest expense:
Administrative expense (1,285) (1,170) (1,025) (115) 10 % (145) 14 %
REO operations (expense) income (334)(205)124 (129) 63 % (329) (265)%
Other non-interest expense (1,445) (191)(179) (1,254) 657 % (12) 7 %
Total non-interest expense (3,064) (1,566) (1,080) (1,498) 96 % (486) 45 %
Segment adjustments (254)(303)(694) 49 (16)% 391 (56)%
Segment Earnings before income tax
(expense) benefit 2,585 2,147 5,514 438 20 % (3,367) (61)%
Income tax (expense) benefit (807)(600)282 (207) 35 % (882) (313)%
Segment Earnings, net of taxes 1,778 1,547 5,796 231 15 % (4,249) (73)%
Total other comprehensive income (loss),
net of tax 12 (10) 49 22 (220)% (59) (120)%
Total comprehensive income $ 1,790 $1,537 $5,845 $253 16 % $ (4,308) (74)%
Key Drivers:
• The benefit for credit losses in 2015 was primarily due to a reduction of loan loss reserves
associated with the reclassification of mortgage loans from held-for-investment to held-for-sale.
Excluding the effect of loan reclassifications and other related subsequent activity in 2015 and
settlement agreements in 2014, the provision for credit losses decreased compared to 2014 primarily
due to decreases in newly impaired loans. The (provision) for credit losses in 2014 reflects
decreases for both newly impaired loans and settlement agreements with certain sellers to release
specified loans from certain repurchase obligations.
• Management and guarantee fee income increased in 2015 primarily due to higher amortization of
upfront fees, driven by higher loan liquidations resulting from lower average mortgage interest rates,
higher average management and guarantee fee income rates, and an increase in the single-family
credit guarantee portfolio.
• Other non-interest income decreased in 2015 primarily due to increased lower-of-cost-or-fair value
adjustments on loans that were reclassified from held-to-investment to held-for-sale, fair value losses
on STACR debt notes carried at fair value due to an increase in market prices for these notes, as well
as higher STACR transaction volumes, and losses on our investment in CSS. Other non-interest
income decreased in 2014 primarily due to fair value losses on guarantee assets and lower-of-cost-
or-fair-value adjustments on loans held-for-sale, compared to gains on guarantee assets in 2013 due
to an increase in interest rates during that year.