Federal Home Loan Mortgage : Press Release, 02/14/19 pdf

Freddie Mac Reports Full-Year 2018 Net Income of $9.2 Billion and

Comprehensive Income of $8.6 Billion

The Company's Transformed Business Model Continues to Produce Solid Financial and Business Results

Full-Year 2018 Financial Results

• • Solid business revenues, strong credit quality and a higher guarantee portfolio balance delivered $8.6 billion of comprehensive income.

• • GAAP comprehensive income increased 55% over the prior year; comprehensive income, excluding significant items, was $8.4 billion, an increase of approximately 4% over the same period.

• • Although markets exhibited significant interest rate and spread volatility, especially during the fourth quarter of 2018, full-year market-related losses were limited to $0.5 billion.

Fourth Quarter 2018 Financial Results

• • $1.5 billion in comprehensive income that included $0.6 billion in market-related losses will result in a $1.5 billion dividend requirement to the U.S. Treasury in March 2019; cumulative payments to date total $116.5 billion.

"Ten years after the financial crisis, Freddie Mac's transformed business model continues to produce solid financial and business performance, with $8.6 billion of profits this year. We delivered almost $400 billion of liquidity to the U.S. mortgage markets - with a very strong focus on first-time homebuyers and affordable rentals. And we did it while transferring ever greater amounts of credit risk to the private capital markets and away from taxpayers. We're serving our customers better every year and delivering good value to the taxpayers who support us during conservatorship. It's a true success story."

Donald H. Layton Chief Executive Officer

2018 Business Highlights

Producing Solid Results through Strong Business Fundamentals

• • Robust guarantee book growth over the prior year: Total guarantee portfolio grew 5% to $2.1 trillion. Single-family guarantee portfolio grew 4% as new business volume, net of lower single-family refinance volume, was accretive. Multifamily guarantee portfolio grew 17% as new business volume increased 7% to a record $78 billion.

• • Strong credit quality: The single-family serious delinquency rate decreased to 0.69%, the lowest level since 2007, while the multifamily delinquency rate remained near zero, at 0.01%.

• • Continued good return on conservatorship capital (ROCC)(1): The company's aggregate measure, while in conservatorship, of return-versus-risk continues to be above 10% for the year.

Reducing Taxpayer Exposure to the Company's Risks(1)(2)

• • Risk as measured by conservatorship capital was significantly reduced: Declined $11 billion, or 16%, from the prior year, as less conservatorship capital was needed due to home price appreciation plus management actions, primarily the disposition of legacy assets and the transfer of credit risk.

• • Risk reduction of new guarantees, after a securitization period, reflects the company's CRT-intensive business model:

Single-family: Reduced conservatorship capital needed for credit risk by approximately 60% on new business activity in the twelve months ended December 31, 2017.

Multifamily: Reduced conservatorship capital needed for credit risk by approximately 90%on new business activity in the twelve months ended December 31, 2017.

Expanding Opportunities for U.S. Homebuyers and Renters

• • Helped over 2 million families to own or rent a home in 2018; provided approximately $396 billion in liquidity to the mortgage market.

• • Fulfilled the company's mission: First-time homebuyers represented nearly 46% of new purchase loans, while approximately 93% of the eligible multifamily rental units financed were affordable to families earning at or below 120% of area median incomes.

Full-Year
	Amounts may not add due to rounding
(Dollars in billions)	2018	2017	Change	12/31/2018	9/30/2018	Change
GAAP comprehensive income	$8.6	$5.6	$3.0	$1.5	$2.6	$(1.1)
(3)	(0.2)	2.5	(2.7)	-	-	-

Total significant items

Three Months Ended

Comprehensive income, excluding significant items(3) Conservatorship capital (average during the period)(1) ROCC, based on GAAP comprehensive income(1)

$56.6 15.2%

$8.4

$1.5	$2.6	$(1.1)
$54.4	$56.5	$(2.1)
7.0%	10.9%	18.1%	(7.2)%

$8.1

$0.3

$67.6 8.2%

$(11.0)Adjusted ROCC, based on comprehensive income, excludingsignificant items(1)(3)

14.8%

11.9%

2.9%

10.9%

18.1%

(7.2)%

• (1) See page 7 for additional information on FHFA's Conservatorship Capital Framework (CCF) and the Return on Conservatorship Capital.

• (2) See pages 9-10 for information related to the reduction in conservatorship capital needed for credit risk.

• (3) See pages 16-17 of this press release for additional details regarding Non-GAAP Financial Measures and reconciliations to the comparable amounts under GAAP.

McLean, VA - Freddie Mac (OTCQB: FMCC) today reported net income of $9.2 billion for the full-year 2018, compared to net income of $5.6 billion for the full-year 2017. The company also reported comprehensive income of $8.6 billion for the full-year 2018, compared to comprehensive income of $5.6 billion for the full-year 2017.

Summary of Consolidated Statements of Comprehensive Income (Loss)

(Dollars in millions)

Net interest income

Benefit (provision) for credit losses

2018 $12,021 736

Full-Year 2017 $14,164 84

Change $(2,143)

Three Months Ended 12/31/2018 9/30/2018 Change

$2,743

652

359

$3,257 380

$(514)

(21)

Net interest income after benefit (provision)

for credit losses Non-interest income (loss):

12,757

14,248 (1,491)

3,102

3,637 (535)

Guarantee fee income Mortgage loans gains (losses) Investment securities gains (losses) Debt gains (losses)

Derivative gains (losses) Other income (loss)

Total non-interest income (loss)

(2,293)	(2,106)	(187)
(169)	(189)	20
(1,484)	(1,340)	(144)
(881)	(648)	(233)

3,544

(1,160)
(646)	(569)	(77)
(82)	(38)	(44)
(384)	(375)	(9)
(262)	(218)	(44)

662

149

209 (1)

2,026 (1,302)

94 397

1,036 (1,731)

(443) 772

151 569

158 117

(1,988) 3,258

728 (2,432)

4,982 (4,268)

79 (13)

6,869

(3,325)

825

Non-interest expense:

Administrative expense

Real estate owned operations expense Temporary Payroll Tax Cut Continuation Act of 2011 expense

Other expense

Total non-interest expense

(4,827)

(4,283)

(544)

(1,374)

(1,200) (174)

Income before income tax (expense) benefitIncome tax (expense) benefit

Net income (loss)

11,474	16,834	(5,360)	1,393	3,262	(1,869)
(2,239)	(11,209)	8,970	(293)	(556)	263

9,235

5,625

3,610

1,100

2,706

(1,606)

Total other comprehensive income (loss), net of taxes and reclassification adjustments Comprehensive income (loss)

(613)

$8,622

(67) $5,558

(546) $3,064

378 $1,478

(147) $2,559

525 $(1,081)

Financial Results Discussion

Full-Year 2018 Financial Results- Freddie Mac's full-year 2018 net income of $9.2 billion and comprehensive income of $8.6 billion increased $3.6 billion and $3.1 billion, respectively, from the full-year 2017. The improved results in 2018 primarily reflect two significant items in 2017, a $5.4 billion write-down of the company's net deferred tax asset resulting from tax reform legislation, partially offset by a $4.5 billion, or $2.9 billion after-tax, benefit from a litigation settlement related to non-agency mortgage-related securities, combined with lower income tax expense due to the reduction in the statutory corporate income tax rate in 2018.

• • Market-related losses of approximately $0.5 billion, after-tax, for 2018 resulted almost entirely from interest rate impacts(1).

Fourth Quarter 2018 Financial Results - The company's fourth quarter 2018 net income of $1.1 billion and comprehensive income of $1.5 billion decreased $1.6 billion and $1.1 billion, respectively, from the third quarter of 2018, driven primarily by market-related losses.

• • Significant interest rate and spread volatility in the fourth quarter of 2018 produced market-related losses of

approximately $0.6 billion, after-tax, with approximately half from interest rate impacts and half from market spread impacts.

(1)

(1) Net of hedge accounting amortization.

Selected Financial Measures

Net Interest Income

$ Billions

Full-Year 2018

• • Net interest income decreased $2.2 billion from the full-year 2017 driven by a reduction in the balances of the mortgage-related investments portfolio and the other investments portfolio, combined with $0.9 billion in hedge accounting impacts for the full-year 2018 due to the adoption of amended hedge accounting guidance in the fourth quarter of 2017.

Guarantee Fee Income(1) and Multifamily Guarantee Portfolio

Guarantee Fee Income ($M)

Multifamily Guarantee Portfolio ($B)

(1) Guarantee fee income on a GAAP basis is primarily from the company's multifamily business.

Full-Year 2018

• • Guarantee fee income increased $149 million from the full-year 2017 primarily due to continued growth in the multifamily guarantee portfolio.

Benefit (Provision) for Credit Losses

$ Millions

Full-Year 2018

• • Benefit for credit losses increased $652 million during 2018, primarily driven by estimated losses from the hurricanes in 2017.

Non-GAAP Financial Measure Highlights

In addition to analyzing the company's results on a GAAP basis, management reviews net interest income and guarantee fee income on an "adjusted," or non-GAAP, basis. These adjusted financial measures are calculated by reclassifying certain credit guarantee-related activities and investment-related activities between various line items on the company's GAAP consolidated statements of comprehensive income. Management believes these non-GAAP financial measures are useful because they more clearly reflect the company's sources of revenue.

The company also considers whether certain significant items occurred during the quarter that are not indicative of ongoing operations. If so, the company presents a non-GAAP financial measure for comprehensive income that is calculated by excluding these significant items from GAAP comprehensive income. The company also presents a non-GAAP financial measure, adjusted return on conservatorship capital, that is calculated based on comprehensive income, excluding significant items. Management believes that both of these non-GAAP financial measures are useful because they allow users to better understand the drivers of the company's on-going financial results.

For additional information about the company's non-GAAP financial measures and reconciliations to the comparable amounts under GAAP, see pages 16 - 17 of this press release.

The graphs that follow show the company's non-GAAP financial measures for adjusted net interest income and adjusted guarantee fee income.

Adjusted Net Interest Income(1) and Investments Portfolio $ Billions

Adjusted Net Interest Income

Other Investments Portfolio

Mortgage-related Investments Portfolio

(1) Non-GAAP financial measure. For reconciliations to the comparable amounts under GAAP, see page 15 of this press release.

Note: Amounts may not add due to rounding.

Full-Year 2018

• • Adjusted net interest income decreased $0.2 billion from the full-year 2017, which primarily reflected a decline in the company's investments portfolio, partially offset by higher net interest yield on both mortgage-related securities and other investments.

• • The mortgage-related investments portfolio declined $35 billion, or 14%, from the prior year, ending 2018 at $218 billion, below the 2018 year-end Purchase Agreement cap of $250 billion.

The balances of liquid assets and securitization pipeline assets at December 31, 2018 were $120 billion and $32 billion, respectively, together representing approximately 70% of the mortgage-related investments portfolio.

The balance of less liquid assets declined $22 billion, or 25%, from year-end 2017 to $66 billion at December 31, 2018 primarily due to repayments and active dispositions, such as sales and securitization of single-family reperforming loans and sales of single-family non-agency mortgage-related securities.

-

The balance of non-agency mortgage-related securities was $2 billion at year-end 2018, a decline of $3 billion, or 59%, from year-end 2017.