Freddie Mac 2015 Annual Report Download - page 287

Financial Statements Notes to the Consolidated Financial Statements | Note 12
Freddie Mac 2015 Form 10-K 285
Continuation Act of 2011 expense into management and guarantee fee income for 2014 and 2013,
respectively.
The sum of Segment Earnings for each segment and the All Other category equals GAAP net income
(loss). Likewise, the sum of comprehensive income (loss) for each segment and the All Other category
equals GAAP comprehensive income (loss). However, the accounting principles we apply to present
certain financial statement line items in Segment Earnings for our reportable segments differ significantly
from those applied in preparing the comparable line items in our consolidated financial statements
prepared in accordance with GAAP in order to reflect the business activities each segment performs. The
significant reclassifications are discussed below. Many of the reclassifications, adjustments and
allocations described below relate to the amendments to the accounting guidance for transfers of financial
assets and consolidation of VIEs, which we adopted effective January 1, 2010. These amendments
require us to consolidate our single-family PC trusts and certain other VIEs. Due to the adoption of this
guidance, the results of our operating segments from a GAAP perspective do not reflect how the
Segments are managed.
Credit Guarantee Activity-Related Reclassifications
All credit guarantee-related income and costs are included in Segment Earnings management and
guarantee fee income.
• Net guarantee fees are reclassified in Segment Earnings from net interest income to management
and guarantee fee income.
• Implied management and guarantee fee income related to unsecuritized loans held in the mortgage
investments portfolio is reclassified in Segment Earnings from net interest income to management
and guarantee fee income.
• The portion of the amount reversed for accrued but uncollected interest upon placing loans on a non-
accrual status that relates to management and guarantee fees is reclassified in Segment Earnings
from net interest income to management and guarantee fee income. The remaining portion of the
allowance for lost interest is reclassified in Segment Earnings from net interest income to provision for
credit losses.
Investment Activity-Related Reclassifications
We move certain items into or out of net interest income so that, on a Segment Earnings basis, net
interest income reflects how we measure the effective yield earned on securities held in our mortgage
investments portfolio and our cash and other investments portfolio.
We use derivatives extensively in our investment activity. The reclassifications described below allow us
to reflect, in Segment Earnings net interest income, the costs associated with this use of derivatives.
• The accrual of periodic cash settlements of all derivatives is reclassified in Segment Earnings from
derivative gains (losses) into net interest income to fully reflect the periodic cost associated with the
protection provided by these contracts.
• Up-front cash paid or received upon the purchase or writing of swaptions and other option contracts is
reclassified in Segment Earnings prospectively on a straight-line basis from derivative gains (losses)
into net interest income over the contractual life of the instrument to fully reflect the periodic cost
associated with the protection provided by these contracts.