Freddie Mac 2004 Annual Report Download - page 56

retirements completed in the second quarter. Net interest yield declined as amortization expenses and lower
asset yields outpaced lower funding costs.
1Q03 vs. 4Q02
Net interest income and net interest yield, both of which are presented on a fully taxable-equivalent basis,
increased by $9 million and decreased by 1 basis point, respectively, during the Ñrst quarter of 2003 compared
to the fourth quarter of 2002. The increase in net interest income related to a decrease in short-term debt
expense as a result of declining interest rates and higher interest income related to derivatives due to an
increase in volume of receive-Ñxed swaps. Partially oÅsetting these increases was higher amortization expense
related to net deferred premiums on mortgage investment purchases. In addition, lower yields were recognized
on the investment portfolio as short-term rates remained low. During the Ñrst quarter of 2003, we reÑned the
assumptions and calculations for the amortization of deferred fees recorded as discounts on assets in our
Retained portfolio. The eÅect on Net interest income of reÑning these assumptions, which was treated as a
change in estimate (and which also impacted Management and guarantee income), was the recognition of
$31 million of additional amortization income during the Ñrst quarter of 2003. Although yields on assets were
declining faster than debt costs, the margin reduction was oÅset by the rate impact of lower derivative
expenses.
Non-Interest Income (Loss)
Table 17 summarizes our Non-interest income (loss) for 2004, 2003 and 2002.
Table 17 Ì Non-Interest Income (Loss)
2004 vs. 2003 2003 vs. 2002
Year Ended Year Ended
December 31, December 31,
2004 2003 Change 2002 Change
(dollars in millions)
Non-interest income (loss)
Management and guarantee income ÏÏÏÏÏÏÏÏÏÏ $ 1,382 $1,653 $ (271) $ 1,527 $ 126
Gains (losses) on ""Guarantee asset for
Participation CertiÑcates, at fair value'' ÏÏÏÏÏ (1,135) (1,461) 326 (2,176) 715
Income on ""Guarantee obligation for
Participation CertiÑcates'' ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 732 925 (193) 592 333
Derivative gains (losses) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (4,475) 39 (4,514) 5,302 (5,263)
Hedge accounting gains (losses) ÏÏÏÏÏÏÏÏÏÏÏÏÏ 743 644 99 187 457
Gains (losses) on investment activity ÏÏÏÏÏÏÏÏÏ (348) (1,114) 766 1,799 (2,913)
Gains (losses) on debt retirementÏÏÏÏÏÏÏÏÏÏÏÏ (327) (1,775) 1,448 (674) (1,101)
Resecuritization fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 159 352 (193) 276 76
Other incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 230 493 (263) 321 172
Total non-interest income (loss) ÏÏÏÏÏÏÏÏÏ $(3,039) $ (244) $(2,795) $ 7,154 $(7,398)
Management and Guarantee Income
Management and guarantee income primarily represents the contractual guarantee fees we receive on
mortgage-related securities issued and guaranteed by us that are held by third party investors. For securities we
hold, the associated components of guarantee income are included in Net interest income. Management and
guarantee income also includes amortization of pre-2003 deferred fees, including credit fees and buy-down
fees on PCs and Structured Securities that have not been previously sold under SFAS 125/140 or that have not
been previously subject to Ñnancial guarantee accounting under FIN 45.
Freddie Mac
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