Freddie Mac 2015 Annual Report Download - page 29

Management's Discussion and Analysis Consolidated Results of Operations | Other Comprehensive Income
Freddie Mac 2015 Form 10-K 27
OTHER COMPREHENSIVE INCOME (LOSS)
EXPLANATION OF KEY DRIVERS OF OTHER COMPREHENSIVE INCOME (LOSS)
Our investments in securities classified as available-for-sale are measured at fair value on our
consolidated balance sheets. The fair value of these securities is primarily affected by changes in interest
rates, credit spreads, and the movement of these securities towards maturity. All unrealized gains and
losses on these securities are excluded from earnings and reported in other comprehensive income until
realized. We reclassify our unrealized gains and losses from AOCI to earnings upon the sale of the
securities or if the securities are determined to be other-than-temporarily impaired.
If, subsequent to the recognition of other-than-temporary impairment, our expectation of the cash flows
we will receive on a previously impaired security has significantly increased, we will accrete that increase
in cash flows into the security's amortized cost basis and use the new amortized cost basis for future
impairment evaluation. The increased amortized cost basis will generally reduce the amount of unrealized
gains that we would have otherwise recognized if not for the accretion.
The following table presents the attribution of the other comprehensive income (loss) reported in our
consolidated statements of comprehensive income.
Year Ended December 31,
(in millions) 2015 2014 2013
Other comprehensive income, excluding accretion and reclassifications $ 374 $2,563 $3,167
Accretion due to significant increases in expected cash flows on previously-
impaired available-for-sale securities (449)(519)(339)
Reclassifications from AOCI (502)(308)104
Total other comprehensive income (loss) $(577) $ 1,736 $2,932
Key Drivers:
• Other comprehensive income was a loss in 2015 compared to income in 2014, primarily due to less
spread tightening for our non-agency mortgage-related securities and less impairment
reclassifications from AOCI into earnings. Other comprehensive income declined during 2014
compared to 2013, primarily due to less spread tightening for our non-agency mortgage-related
securities, partially offset by a flattening of the yield curve.
• We recognized lower unrealized gains as a result of our accretion of the increase in expected cash
flows to the amortized cost basis of the previously-impaired available-for-sale securities in all periods
presented. Accretion was higher during 2015 and 2014 compared to 2013, as a result of improving
collateral performance and declining longer-term interest rates.
• We reclassified unrealized gains and losses from AOCI to earnings as a result of our sales of
available-for-sale mortgage-related securities in all periods presented. During 2015 and 2014, we
reclassified net unrealized gains as a result of improved pricing due to declining longer-term interest
rates and stabilized collateral performance. Conversely, during 2013, we reclassified net unrealized
losses as a result of rising longer-term interest rates.