Freddie Mac 2008 Annual Report Download - page 69

Table 8 presents Segment Earnings by segment and the All Other category and includes a reconciliation of Segment
Earnings to net income (loss) prepared in accordance with GAAP.
Table 8 — Reconciliation of Segment Earnings to GAAP Net Income (Loss)
2008 2007 2006
Year Ended December 31,
(in millions)
Segment Earnings, net of taxes:
Investments.................................................................... $ (1,175) $ 2,028 $ 2,111
Single-family Guarantee . . . ........................................................ (9,318) (256) 1,289
Multifamily ................................................................... 364 398 434
All Other ..................................................................... 134 (103) 19
Total Segment Earnings (loss), net of taxes . . .......................................... (9,995) 2,067 3,853
Reconciliation to GAAP net income (loss):
Derivative- and foreign currency denominated debt-related adjustments . . . ........................ (13,219) (5,667) (2,371)
Credit guarantee-related adjustments . . ................................................. (3,928) (3,268) (201)
Investment sales, debt retirements and fair value-related adjustments ............................. (10,462) 987 231
Fully taxable-equivalent adjustments . . ................................................. (419) (388) (388)
Total pre-tax adjustments . ........................................................ (28,028) (8,336) (2,729)
Tax-related adjustments
(1)
.......................................................... (12,096) 3,175 1,203
Total reconciling items, net of taxes ................................................. (40,124) (5,161) (1,526)
GAAP net income (loss) ............................................................ $(50,119) $(3,094) $ 2,327
(1) 2008 includes a non-cash charge related to the establishment of a partial valuation allowance against our net deferred tax assets of approximately
$22 billion that is not included in Segment Earnings.
Investments
Our Investments segment is responsible for our investment activity in mortgages and mortgage-related securities, other
investments, debt financing and managing our interest rate risk, liquidity and capital positions. We invest principally in
mortgage-related securities and single-family mortgage loans.
Performance comparison for 2008 versus 2007:
• Segment Earnings (loss) decreased to $(1.2) billion for 2008, compared to Segment Earnings of $2.0 billion for 2007.
• Segment Earnings net interest yield increased 3 basis points to 54 basis points in 2008 compared to 2007 due to both
the purchases of fixed-rate assets at wider spreads relative to our funding costs and the replacement of higher cost
short- and long-term debt with lower cost debt issuances. Partially offsetting the increase in net interest yield was the
impact of declining rates on our floating rate assets and an increase in derivative interest carry expense on net pay-
fixed swaps in a declining rate environment.
• Segment Earnings included security impairments of $4.3 billion during 2008 that reflect expected credit-related losses.
Non-credit related security impairments of $13.4 billion were not included in Segment Earnings during 2008.
• Segment Earnings non-interest expense for 2008 includes a loss of $1.1 billion on investment transactions related to
the Lehman short-term lending transactions. See “CONSOLIDATED RESULTS OF OPERATIONS — Non-Interest
Expense — Securities Administrator Loss on Investment Activity” for more information.
• The unpaid principal balance of our mortgage-related investments portfolio increased 10.4% to $732 billion at
December 31, 2008 compared to $663 billion at December 31, 2007. Contributing to the growth in the portfolio
during the second half of 2008 was FHFA’s directive that we acquire and hold increased amounts of mortgage loans
and mortgage-related securities in our mortgage portfolio to provide additional liquidity to the mortgage market.
Agency securities comprised approximately 68% of the unpaid principal balance of the mortgage-related investments
portfolio at December 31, 2008 versus 61% at December 31, 2007.
• Due to the substantial levels of volatility in worldwide financial markets in 2008, our ability to access both the term
and callable debt markets has been limited and we have relied increasingly on the issuance of shorter-term debt.
While we use interest rate derivatives to economically hedge a significant portion of our interest rate exposure, we are
exposed to risks relating to our ability to issue new debt when our outstanding debt matures and to the variability in
interest costs on our new issuances of debt, which directly impacts our Investments Segment earnings.
Single-Family Guarantee
In our Single-family Guarantee segment, we securitize substantially all of the newly or recently originated single-family
mortgages we have purchased and issue mortgage-related securities, called PCs, that can be sold to investors or held by us in
our Investments segment.
Performance comparison for 2008 versus 2007:
• Segment Earnings (loss) increased to $(9.3) billion in 2008 compared to $(256) million in 2007.
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