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Feb. 11, 2021, 8:03 a.m. EST

10-K: FEDERAL HOME LOAN MORTGAGE CORP

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(EDGAR Online via COMTEX) -- Management's Discussion and Analysis Consolidated Results of Operations

CONSOLIDATED RESULTS OF OPERATIONS







        FREDDIE MAC | 2020 Form 10-K          22
        --------------------------------------------------------------------------------
        Management's Discussion and Analysis       Consolidated Results of Operations
        Table 1 - Summary of Consolidated Statements of Comprehensive Income (Loss)
                                                                                                                                Year Over Year Change
                                                              Year Ended December 31,                           2020 vs. 2019                         2019 vs. 2018
        (Dollars in millions)                            2020             2019           2018                  $              %                       $                %
          Net interest income                          $12,771          $11,848        $12,021                  $923              8  %                   ($173)         (1) %
        Guarantee fee income                             1,442            1,089            866                   353             32                        223          26
        Investment gains (losses), net                   1,813              818          1,921                   995            122                     (1,103)        (57)
          Other income (loss)                              633              323            762                   310             96                       (439)        (58)
        Net revenues                                    16,659           14,078         15,570                 2,581             18                     (1,492)        (10)
          Benefit (provision) for credit                (1,452)             746            736                (2,198)          (295)                        10           1
        losses
        Credit enhancement expense                      (1,058)            (749)          (409)                 (309)           (41)                      (340)        (83)
        Benefit for (decrease in) credit                   323               41             (8)                  282            688                         49         613
        enhancement recoveries
        REO operations expense                            (149)            (229)          (169)                   80             35                        (60)        (36)
        Credit-related benefit (expense)                (2,336)            (191)           150                (2,145)        (1,123)                      (341)       (227)
        Administrative expense                          (2,535)          (2,564)        (2,293)                   29              1                       (271)        (12)
        Temporary Payroll Tax Cut
        Continuation Act of 2011 expense                (1,836)          (1,617)        (1,484)                 (219)           (14)                      (133)         (9)
        Other expense                                     (723)            (657)          (469)                  (66)           (10)                      (188)        (40)
        Operating expense                               (5,094)          (4,838)        (4,246)                 (256)            (5)                      (592)        (14)
        Income before income tax (expense)               9,229            9,049         11,474                   180              2                     (2,425)        (21)
        benefit
        Income tax (expense) benefit                    (1,903)          (1,835)        (2,239)                  (68)            (4)                       404          18
        Net income (loss)                                7,326            7,214          9,235                   112              2                     (2,021)        (22)
        Total other comprehensive income
        (loss),                                            205              573           (613)                 (368)           (64)                     1,186         193
        net of taxes and reclassification
        adjustments
        Comprehensive income (loss)                     $7,531           $7,787         $8,622                 ($256)            (3) %                   ($835)        (10) %
        


See Critical Accounting Policies and Estimates for information concerning certain significant accounting policies and estimates applied in determining our reported results of operations and Note 1 for information on our accounting policies and a summary of other significant accounting policies and the related notes in which information about them can be found. Net Revenues

Net interest income consists of guarantee portfolio net interest income, investments portfolio net interest income, and income (expense) from hedge accounting.

Management's Discussion and Analysis Consolidated Results of Operations

n Investments portfolio net interest income consists of two components:







                                                                                                                          Year Over Year Change
                                                           Year Ended December 31,                        2020 vs. 2019                         2019 vs. 2018
        (Dollars in millions)                        2020            2019           2018                  $             %                       $              %
        Guarantee portfolio net interest
        income:
        Contractual net interest income             $5,014          $3,767          $3,457              $1,247         33%                        $310         9%
        Net interest income related to
        the Temporary Payroll Tax Cut
        Continuation Act of 2011                     1,884           1,590           1,438                 294         18                          152         11
        Deferred fee income                          3,787           2,436           2,900               1,351         55                         (464)       (16)
        Total guarantee portfolio net
        interest income                             10,685           7,793           7,795               2,892         37                           (2)        -
        Investments portfolio net
        interest income:
        Contractual net interest income
        and amortization                             5,082           5,411           6,251                (329)        (6)                        (840)       (13)
        Interest expense related to CRT
        debt                                          (764)         (1,104)         (1,094)                340         31                          (10)       (1)
        Total investments portfolio net
        interest income                              4,318           4,307           5,157                  11          -                         (850)       (16)
        Income (expense) from hedge
        accounting                                  (2,232)           (252)           (931)             (1,980)       (786)                        679         73
        Net interest income                        $12,771         $11,848         $12,021                $923         8%                        ($173)       (1%)
        


Key Drivers:

Management's Discussion and Analysis Consolidated Results of Operations

n Income (expense) from hedge accounting l 2020 vs. 2019 - Expense increased primarily due to amortization of hedge accounting-related basis adjustments driven by higher prepayments, partially offset by higher income related to accruals of periodic cash settlements on derivatives in hedging relationships.

Management's Discussion and Analysis Consolidated Results of Operations

Net Interest Yield Analysis

The table below presents an analysis of interest-earning assets and interest-bearing liabilities. To calculate the average balances, we generally use a daily weighted average of amortized cost. When daily average balance information is not available, such as for mortgage loans, we use monthly averages. Mortgage loans on non-accrual status, where interest income is generally recognized when collected, are included in the average balances.







        Table 3 - Analysis of Net Interest Yield
                                                                                                                                     Year Ended December 31,
                                                                                    2020                                                       2019                                                       2018
                                                                                     Interest                                                   Interest                                                   Interest
                                                                  Average             Income         Average                 Average             Income         Average                 Average             Income         Average
        (Dollars in millions)                                     Balance           (Expense)          Rate                  Balance           (Expense)          Rate                  Balance           (Expense)          Rate
        Interest-earning assets:
        Cash and cash equivalents                                     $24,428            $30             0.12  %                  $8,925           $187             2.10  %                  $7,189            $67             0.93  %
        Securities purchased under agreements to                       94,350            354             0.38                     56,465          1,284             2.27                     45,360            880             1.94
        resell
        Secured lending                                                 4,752             85             1.79                      2,933            104             3.55                      1,350             35             2.58
        Mortgage-related securities:
        Mortgage-related securities                                   109,794          4,645             4.23                    132,735          5,761             4.34                    143,424          6,026             4.20
        Extinguishment of debt securities of                          (68,005)        (2,377)           (3.50)                   (85,407)        (3,524)           (4.13)                   (88,757)        (3,437)           (3.87)
        consolidated trusts held by Freddie Mac
        Total mortgage-related securities, net                         41,789          2,268             5.43                     47,328          2,237             4.73                     54,667          2,589             4.74
        Non-mortgage-related securities                                30,053            313             1.04                     22,776            500             2.19                     18,955            446             2.35
        Loans held by consolidated trusts(1)                        2,057,249         56,225             2.73                  1,882,802         64,927             3.45                  1,799,122         61,883             3.44
        Loans held by Freddie Mac(1)                                   92,538          3,065             3.31                     86,973          3,656             4.20                     98,005          4,154             4.24
        Total interest-earning assets                               2,345,159         62,340             2.66                  2,108,202         72,895             3.46                  2,024,648         70,054             3.46
        Interest-bearing liabilities:
        Debt securities of consolidated trusts                      2,088,913        (48,658)           (2.33)                 1,907,818        (57,504)           (3.01)                 1,826,429        (54,966)           (3.01)
        including those held by Freddie Mac
        Extinguishment of debt securities of                          (68,005)         2,377             3.50                    (85,407)         3,524             4.13                    (88,757)         3,437             3.87
        consolidated trusts held by Freddie Mac
        Total debt securities of consolidated trusts                2,020,908        (46,281)           (2.29)                 1,822,411        (53,980)           (2.96)                 1,737,672        (51,529)           (2.97)
        held by third parties
        Debt of Freddie Mac:
        Short-term debt                                                75,668           (606)           (0.80)                    85,492         (1,910)           (2.23)                    62,893         (1,193)           (1.90)
        Long-term debt                                                218,447         (2,682)           (1.23)                   192,100         (5,157)           (2.68)                   216,484         (5,311)           (2.45)
        Total debt of Freddie Mac                                     294,115         (3,288)           (1.12)                   277,592         (7,067)           (2.55)                   279,377         (6,504)           (2.33)
        Total interest-bearing liabilities                          2,315,023        (49,569)           (2.14)                 2,100,003        (61,047)           (2.91)                 2,017,049        (58,033)           (2.88)
        Impact of net non-interest-bearing funding                     30,136              -             0.03                      8,199              -             0.01                      7,599              -             0.01
        Total funding of interest-earning assets                    2,345,159        (49,569)           (2.11)                 2,108,202        (61,047)           (2.90)                 2,024,648        (58,033)           (2.87)
        Net interest income/yield                                                    $12,771             0.55  %                                $11,848             0.56  %                                $12,021             0.59  %
        


(1) Loan fees included in interest income were $4.5 billion, $3.2 billion, and $2.6 billion for loans held by consolidated trusts and $86 million, $112 million, and $104 million for loans held by Freddie Mac during 2020, 2019, and 2018, respectively.

Management's Discussion and Analysis Consolidated Results of Operations

Net Interest Income Rate / Volume Analysis

The table below presents a rate and volume analysis of our net interest income. Our net interest income reflects the reversal of interest income accrued, net of interest received on a cash basis, related to mortgage loans that are on non-accrual status.







                                                                                                     Variance Analysis
                                                                            2020 vs. 2019                                         2019 vs. 2018
        (Dollars in millions)                                   Rate           Volume       Total Change              Rate           Volume        Total Change
        Interest-earning assets:
        Cash and cash equivalents                                ($249)           $92          ($157)                  $101               $19          $120
        Securities purchased under agreements to
        resell                                                  (1,450)           520           (930)                   170               234           404
        Secured lending                                            (66)            47            (19)                    17                52            69
        Mortgage-related securities                               (142)          (974)        (1,116)                   194              (459)         (265)
        Extinguishment of debt securities of
        consolidated trusts held by Freddie Mac                    492            655          1,147                   (220)              133           (87)
        Total mortgage-related securities, net                     350           (319)            31                    (26)             (326)         (352)
        Non-mortgage-related securities                           (314)           127           (187)                   (31)               85            54
        Loans held by consolidated trusts                      (14,332)         5,630         (8,702)                   159             2,885         3,044
        Loans held by Freddie Mac                                 (813)           222           (591)                   (34)             (464)         (498)
        Total interest-earning assets                          (16,874)         6,319        (10,555)                   356             2,485         2,841
        Interest-bearing liabilities:
        Debt securities of consolidated trusts                  13,939         (5,093)         8,846                    (85)           (2,453)       (2,538)
        including those held by Freddie Mac
        Extinguishment of debt securities of
        consolidated trusts held by Freddie Mac                   (492)          (655)        (1,147)                   220              (133)           87
        Total debt securities of consolidated trusts            13,447         (5,748)         7,699                    135            (2,586)       (2,451)
        held by third parties
        Debt of Freddie Mac:
        Short-term debt                                          1,105            199          1,304                   (237)             (480)         (717)
        Long-term debt                                           3,105           (630)         2,475                   (476)              630           154
        Total debt of Freddie Mac                                4,210           (431)         3,779                   (713)              150          (563)
        Total interest-bearing liabilities                      17,657         (6,179)        11,478                   (578)           (2,436)       (3,014)
        Net interest income                                       $783           $140           $923                  ($222)              $49         ($173)
        


Guarantee Fee Income

Guarantee fee income relates primarily to multifamily securitizations, as we generally do not consolidate our multifamily securitization trusts. For additional details on our multifamily securitizations, see MD&A - Our Business Segments - Multifamily - Products and Activities - Securitizations, Guarantees, and Risk Transfer Products.







        FREDDIE MAC | 2020 Form 10-K          27
        --------------------------------------------------------------------------------
        Management's Discussion and Analysis       Consolidated Results of Operations
        . . .
        


Feb 11, 2021

COMTEX_380671350/2041/2021-02-11T08:03:09

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