Freddie Mac 2012 Annual Report Download - page 283

Credit Guarantee Activity-Related Reclassifications
In preparing certain line items within Segment Earnings, we make various reclassifications to earnings determined
under GAAP related to our credit-guarantee activities, including those described below. All credit guarantee-related income
and costs are included in Segment Earnings management and guarantee income.
• Net guarantee fee is reclassified in Segment Earnings from net interest income to management and guarantee income.
• Implied management and guarantee fee related to unsecuritized mortgage loans held in the mortgage investments
portfolio is reclassified in Segment Earnings from net interest income to management and guarantee income.
• The portion of the amount reversed for accrued but uncollected interest upon placing loans on a non-accrual status
that relates to guarantee fees is reclassified in Segment Earnings from net interest income to management and
guarantee income. The remaining portion of the allowance for lost interest is reclassified in Segment Earnings from
net interest income to provision for credit losses.
Segment Adjustments
In presenting Segment Earnings net interest income and management and guarantee income, we make adjustments to
better reflect how management measures and assesses the performance of each segment and the company as a whole. These
adjustments relate to amounts that are not reflected in net income (loss) as determined in accordance with GAAP. These
adjustments are reversed through the segment adjustments line item within Segment Earnings, so that Segment Earnings
(loss) for each segment equals GAAP net income (loss) for each segment. Segment adjustments consist of the following:
• We adjust our Segment Earnings net interest income for the Investments segment to include the amortization of cash
premiums and discounts, as well as buy-up fees, on the consolidated Freddie Mac mortgage-related securities we
purchase as investments. As of December 31, 2012, the unamortized balance of such premiums and discounts, net
was $3.2 billion and the unamortized balance of buy-up fees was $0.8 billion. These adjustments are necessary to
reflect the effective yield realized on investments in consolidated Freddie Mac mortgage-related securities purchased
at a premium or discount or with buy-up fees.
• We adjust our Segment Earnings management and guarantee income for the Single-family Guarantee segment to
include the amortization of buy-down fees and credit delivery fees recorded in periods prior to the January 1, 2010
adoption of accounting guidance for the transfers of financial assets and the consolidation of VIEs. As of
December 31, 2012, the unamortized balance of buy-down fees was $0.6 billion and the unamortized balance of
credit delivery fees was $1.4 billion. We consider such fees to be part of the effective rate of the guarantee fee on
guaranteed mortgage loans. These adjustments are necessary in order to better reflect the realization of revenue
associated with guarantee contracts over the life of the underlying loans.
Segment Allocations
The results of each reportable segment include directly attributable revenues and expenses. Administrative expenses that
are not directly attributable to a segment are allocated to our segments using various methodologies, depending on the nature
of the expense (i.e., semi-direct versus indirect). Net interest income for each segment includes allocated debt funding costs
related to certain assets of each segment. These allocations, however, do not include the effects of dividends paid on our
senior preferred stock. The tax credits generated by the LIHTC partnerships and any valuation allowance on these tax credits
are allocated to the Multifamily segment. The deferred tax asset valuation allowance associated with previously recognized
income tax credits carried forward and tax settlements, as applicable, are allocated to the “All Other” category. All remaining
taxes are calculated based on a 35% federal statutory rate as applied to pre-tax Segment Earnings.
The table below presents Segment Earnings by segment.
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