Freddie Mac 2011 Annual Report Download - page 104

Segment Earnings — Results
Investments
The table below presents the Segment Earnings of our Investments segment.
Table 17 — Segment Earnings and Key Metrics — Investments
(1)
2011 2010 2009
Year Ended December 31,
(dollars in millions)
Segment Earnings:
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,339 $ 6,192 $ 8,090
Non-interest income (loss):
Net impairment of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,833) (3,819) (9,870)
Derivative gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,597) (1,859) 4,695
Gains (losses) on trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (993) (1,386) 4,885
Gains (losses) on sale of mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 (76) 617
Gains (losses) on mortgage loans recorded at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501 34 (46)
Other non-interest income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,266 1,023 (774)
Total non-interest income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,628) (6,083) (493)
Non-interest expense:
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (398) (455) (515)
Other non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (18) (33)
Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (400) (473) (548)
Segment adjustments
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 661 1,358 —
Segment Earnings before income tax benefit (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,972 994 7,049
Income tax benefit (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394 259 (572)
Segment Earnings, net of taxes, including noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,366 1,253 6,477
Less: Net income — noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (2) (1)
Segment Earnings, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,366 1,251 6,476
Total other comprehensive income, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,107 10,226 11,329
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,473 $ 11,477 $ 17,805
Key metrics — Investments:
Portfolio balances:
Average balances of interest-earning assets:
(3)(4)(5)
Mortgage-related securities
(6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $386,115 $465,048 $600,562
Non-mortgage-related investments
(7)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,519 123,537 100,759
Unsecuritized single-family loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,894 59,028 49,013
Total average balances of interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $578,528 $647,613 $750,334
Return:
Net interest yield — Segment Earnings basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.27% 0.96% 1.08%
(1) 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 14: SEGMENT REPORTING — Table 14.2 — Segment Earnings and Reconciliation to GAAP Results.”
(2) For a description of our segment adjustments, see “NOTE 14: SEGMENT REPORTING — Segment Earnings.”
(3) Excludes mortgage loans and mortgage-related securities traded, but not yet settled.
(4) Excludes non-performing single-family mortgage loans.
(5) We calculate average balances based on 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 since 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 increased by $2.1 billion to $3.4 billion in 2011, compared to
$1.3 billion in 2010. Comprehensive income for our Investments segment decreased by $5.0 billion to $6.5 billion in
2011, compared to $11.5 billion in 2010.
During 2011, the UPB of the Investments segment mortgage investments portfolio decreased by 6.7%. We held
$253.6 billion of agency securities and $86.5 billion of non-agency mortgage-related securities as of December 31, 2011,
compared to $302.9 billion of agency securities and $99.6 billion of non-agency mortgage-related securities as of
December 31, 2010. The decline in UPB of agency securities is due mainly to liquidations, including prepayments and
selected sales. 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, to a lesser extent, voluntary
repayments of the underlying collateral, representing a partial return of our investments in these securities. Since the
beginning of 2007, we have incurred actual principal cash shortfalls of $1.5 billion on impaired non-agency mortgage-
related securities in the Investments segment. See “CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in
Securities” for additional information regarding our mortgage-related securities.
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