Freddie Mac 2015 Annual Report Download - page 83

Management's Discussion and Analysis Our Business Segments | Investments
Freddie Mac 2015 Form 10-K 81
FINANCIAL RESULTS
The table below presents the components of the Segment Earnings and comprehensive income for our
Investments segment.
Year Ended December 31, Change 2015 - 2014 Change 2014 - 2013
(dollars in millions) 2015 2014 2013 $ % $ %
Net interest income $ 1,734 $2,966 $3,525 $ (1,232) (42)% $ (559) (16)%
Non-interest income:
Net impairment of available-for-sale securities
recognized in earnings 420 (140)(974)560 (400) 834 (86)
Derivative gains (losses) (70) (5,158) 5,543 5,088 (99) (10,701) (193)
Gains (losses) on trading securities (737)(276) (1,466) (461) 167 1,190 (81)
Non-agency mortgage-related securities
settlements 65 6,084 5,501 (6,019) (99) 583
Other non-interest income 3,614 2,797 3,401 817 29 (604) (18)
Total non-interest income 3,292 3,307 12,005 (15) — (8,698) (72)
Non-interest expense:
Administrative expense (317)(437)(523)120 (27) 86 (16)
Other non-interest (expense) income (4)(6)349 2 (33) (355) (102)
Total non-interest expense (321)(443)(174)122 (28) (269) 155
Segment adjustments 781 635 1,037 146 23 (402) (39)
Segment Earnings before income tax
expense 5,486 6,465 16,393 (979) (15) (9,928) (61)
Income tax expense (1,715) (1,945) (463)230 (12) (1,482) 320
Segment Earnings, net of taxes 3,771 4,520 15,930 (749) (17) (11,410) (72)
Total other comprehensive income (loss), net of
tax (356)1,951 4,357 (2,307) (118) (2,406) (55)
Total comprehensive income $ 3,415 $6,471 $20,287 $ (3,056) (47)% $(13,816) (68)%
Certain of our financial assets and liabilities are measured at amortized cost, while others, including
derivatives, are measured at fair value. We use derivatives to economically hedge the interest-rate
exposure related to our financial assets. As a result, changes in interest rates create volatility in our
Segment Earnings, as the volatility created by interest rate changes is recognized in the Investment
segment, unless otherwise allocated to other segments. The volatility in our Segment Earnings generally
is not indicative of the underlying economics of our business.
Key Drivers:
• Net interest income declined in 2015 and 2014, primarily due to the continued reduction in the
balance of our mortgage-related assets. The decline in our mortgage-related assets balance during
2015 was due to pay-downs and sales and other active dispositions.
• Net impairment of available-for-sale securities recognized in earnings was in a net recovery
position during 2015 compared to a net loss position in 2014, primarily due to the accretion of
previously recognized other-than-temporary impairments exceeding new other-than-temporary
impairments. Net impairment of available-for-sale securities recognized in earnings declined during
2014 compared to 2013, primarily due to a larger amount of accretion being recognized in 2014 and
lower new other-than-temporary impairments.
• Changes in derivative gains (losses) primarily resulted from changes in longer-term interest rates.
Longer-term interest rates declined in both 2015 and 2014, while interest rates increased during