Shares of Federal Home Loan Mortgage Corporation (FMCC - Snapshot Report) or Freddie Mac rose 5.99% following impressive second-quarter 2015 results. The company reflected its 15th consecutive quarter of positive earnings with net income of $4.2 billion, significantly up from $524 million in the prior quarter.
Results were positively driven by higher net interest income and derivative gains. Moreover, benefit for credit losses was a positive. However, elevated non-interest expenses were a concern.
Performance in Detail
Net interest income increased 8.8% sequentially to $4.0 billion. Net interest yield stood at 0.82%, up 7 basis points sequentially. Elevated amortization income due to increased prepayments aided the rise.
Derivative gains were $3.1 billion compared with losses of $2.4 billion in the prior quarter. Increased interest rates and reversal in some of the losses from prior quarters, which resulted from declining interest rates, drove the gains.
Further, non-interest expense came in at $1.3 billion, up 8.3% sequentially, mainly due to higher administrative expenses.
Freddie Mac reported benefit for credit losses of $857 million in the quarter, up 72% sequentially. Huge benefit from the reclassification of certain seriously delinquent single-family mortgage loans from held-for-investment to held-for-sale primarily led to the increase.
Furthermore, segment-wise, on a sequential basis, Single-family Guarantee and Investments segment recorded a significant rise in earnings, while Multifamily segment’s earnings rose 66.5%.
Based on net worth of $5.7 billion (including capital reserve of $1.8 billion), Freddie Mac’s dividend obligation to the Treasury will stand at $3.9 billion in Sep 2015. Notably, including this dividend obligation, the company’s aggregate cash dividends paid to the Treasury will total $96.5 billion.
Further, since Jan 1, 2009, Freddie Mac provided $2.7 trillion of liquidity to the mortgage market, which helped fund 11.7 million single-family homes and 2.3 million units of multifamily rental housing. Moreover, the company helped about 1.1 million borrowers to avoid foreclosure.
