Freddie Mac 2010 Annual Report Download - page 85

Segment Earnings — Results
Investments
Table 17 presents the Segment Earnings of our Investments segment.
Table 17 — Segment Earnings and Key Metrics — Investments
(1)
2010 2009 2008
Year Ended December 31,
(dollars in millions)
Segment Earnings:
Net interest income . . . ......................................................... $ 6,192 $ 8,090 $ 2,815
Non-interest income (loss):
Net impairments of available-for-sale securities . ...................................... (3,819) (9,870) (17,129)
Derivative gains (losses) . . . . ................................................... (1,859) 4,695 (12,845)
Other non-interest income (loss) . . ............................................... (405) 4,682 2,793
Total non-interest income (loss) . ............................................... (6,083) (493) (27,181)
Non-interest expense:
Administrative expenses . . . . ................................................... (455) (515) (486)
Other non-interest expense . . ................................................... (18) (33) (1,117)
Total non-interest expense . ................................................... (473) (548) (1,603)
Segment adjustments
(2)
......................................................... 1,358 — —
Segment Earnings (loss) before income tax benefit (expense) ............................... 994 7,049 (25,969)
Income tax benefit (expense) . . ................................................... 259 (572) (2,047)
Less: Net (income) loss - noncontrolling interest . . ...................................... (2) (1) (5)
Segment Earnings (loss), net of taxes . . . . . . ...................................... $ 1,251 $ 6,476 $ (28,021)
Key metrics — Investments:
Portfolio balances:
Average balances of interest-earning assets:
(3)(4)(5)
Mortgage-related securities
(6)
................................................... $465,048 $600,562 $584,146
Non-mortgage-related investments
(7)
............................................... 123,537 100,759 72,087
Unsecuritized single-family loans. . ............................................... 59,028 49,013 29,163
Total average balances of interest-earning assets . . . . . . ............................... $647,613 $750,334 $685,396
Return:
Net interest yield — Segment Earnings basis. . . . . ...................................... 0.96% 1.08% 0.42%
(1) Under our revised method of presenting Segment Earnings, Segment Earnings for the Investments segment equals GAAP net income (loss) attributable
to Freddie Mac for the Investments segment. For reconciliations of the Segment Earnings line items to the comparable line items in our consolidated
financial statements prepared in accordance with GAAP, see “NOTE 17: SEGMENT REPORTING — Table 17.2 — Segment Earnings and
Reconciliation to GAAP Results.”
(2) For a description of our segment adjustments, see “NOTE 17: SEGMENT REPORTING — Segment Earnings — Segment Adjustments.”
(3) Based on UPB and excludes mortgage-related securities traded, but not yet settled.
(4) Excludes non-performing single-family mortgage loans.
(5) For securities, we calculate average balances based on their amortized cost.
(6) Includes our investments in single-family PCs and certain Other Guarantee Transactions, which have been consolidated under GAAP on our
consolidated balance sheet beginning on January 1, 2010.
(7) Includes the average balances of interest-earning cash and cash equivalents, non-mortgage-related securities, and federal funds sold and securities
purchased under agreements to resell.
Segment Earnings for our Investments segment decreased by $5.2 billion to $1.3 billion in 2010, compared to
$6.5 billion in 2009.
During 2010, the UPB of the Investments segment mortgage investments portfolio decreased by 19.4%, compared to a
decrease of 9.6% during 2009. The UPB of the Investments segment mortgage investments portfolio decreased from
$598 billion at December 31, 2009 to $482 billion at December 31, 2010.
We held $302.9 billion of agency securities and $99.6 billion of non-agency mortgage-related securities as of
December 31, 2010 compared to $440.0 billion of agency securities and $113.7 billion of non-agency mortgage-related
securities as of December 31, 2009. The decline in UPB of agency securities is due mainly to liquidations, including
prepayments and select sales. Liquidations during 2010 increased substantially due to higher refinance activity, as mortgage
rates hit record lows, and increased purchases of seriously delinquent and modified loans from the mortgage pools
underlying both our PCs and other agency securities. The decline in UPB of non-agency mortgage-related securities is due
mainly to the receipt of monthly remittances of principal repayments from both the recoveries of liquidated loans and
voluntary repayments of the underlying collateral, representing a partial return of our investments in these securities.
Purchase and sales activity in the Investments segment was minimal in 2010. See “CONSOLIDATED BALANCE SHEETS
ANALYSIS — Investments in Securities” for additional information regarding our mortgage-related securities.
Segment Earnings net interest income and net interest yield decreased $1.9 billion and 12 basis points, respectively,
during 2010, compared to 2009. The primary driver underlying these decreases was a decrease in the average balance of
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