Freddie Mac 2015 Annual Report Download - page 84

Management's Discussion and Analysis Our Business Segments | Investments
Freddie Mac 2015 Form 10-K 82
2013. See "Consolidated Results of Operations - Derivative Gains (Losses)" for additional
information.
• The losses on trading securities during all periods were primarily due to the movement of securities
in an unrealized gain position towards maturity. The losses on trading securities in 2015 were larger
than 2014, as a result of agency spreads widening in 2015 compared to tightening in 2014. The
losses on trading securities in 2013 were primarily driven by increases in longer-term interest rates.
• Non-agency mortgage-related securities settlements declined significantly during 2015 compared
to 2014, as a majority of our non-agency mortgage-related securities litigation settled during 2014 and
2013. We continue to have ongoing litigation with respect to certain other non-agency mortgage-
related securities. In 2015, we entered into one small settlement to resolve a claim with respect to
certain non-agency mortgage-related securities that we hold, while we reached settlements with 10
institutions during 2014. Income from the settlement of non-agency mortgage-related securities
litigation was significant during 2014, however it was relatively flat compared to 2013.
• Other non-interest income increased during 2015 compared to 2014, primarily due to an increase in
the amortization of basis adjustments associated with debt securities of consolidated trusts. This
increase was a result of higher prepayment rates during 2015 compared to 2014. Other non-interest
income decreased during 2014 compared to 2013, primarily due to a decrease in the amortization of
basis adjustments associated with debt securities of consolidated trusts, as a result of slower
prepayment rates. See "Key Economic Indicators" for a discussion of mortgage interest rates, which
are generally correlated to the amount of refinance activity.
• Income tax expense decreased during 2015 compared to 2014, as result of lower Segment Earnings
and a relatively flat effective tax rate (see Note 11). Income tax expense increased during 2014
compared to 2013, as a result of a full year of income tax expense in 2014. In 2013, we released the
valuation allowance against our net deferred tax assets, creating less income tax expense for the
year.
• Other comprehensive income was a loss during 2015 compared to income during 2014, primarily
due to less spread tightening for our non-agency mortgage-related securities and less impairment
reclassifications from AOCI to earnings. The decrease in other comprehensive income during 2014
compared to 2013 was primarily due to less spread tightening for our non-agency mortgage-related
securities, partially offset by a flattening of the yield curve during 2014. Other comprehensive income
in all periods reflects the reversals of unrealized losses due to the accretion of other-than-temporary
impairments in earnings and the reclassification of unrealized gains and losses related to available-
for-sale securities that were sold during the respective periods.