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Freddie Mac Announces Record Earnings For 2000

January 19, 2001

2000 Earnings Per Share Up 15 Percent

McLean, VA- Freddie Mac (NYSE:FRE) today announced record diluted earnings per common share of $3.40 for 2000, a 15 percent increase over 1999 diluted earnings per common share of $2.96. Net income for 2000 was $2.547 billion, a 15 percent increase over 1999 net income of $2.223 billion.

Fourth quarter 2000 diluted earnings per common share of $0.89 represent a 13 percent increase over fourth quarter 1999 diluted earnings per common share of $0.79. Net income for the fourth quarter 2000 was $663 million, compared to $594 million for the same period a year ago and $645 million for third quarter 2000.

"2000 was another excellent year for Freddie Mac, building upon our extraordinary record of performance," said Leland C. Brendsel, Chairman and Chief Executive Officer. "We delivered high-quality earnings growth of 15 percent, while keeping credit and interest-rate risk at conservative levels. We achieved our 30th consecutive year of profitability, and our return on common equity exceeded 20 percent for the 19th year in a row."

Brendsel added, "We ended the year with rock-solid financial strength, well protected from economic volatility and ready to meet the nation's housing finance needs for years to come. Our tremendous success in fulfilling our mission has earned us broad public support. The enhancements to our capital management and disclosure practices that we announced in October raise the already high standard of information we provide to investors and far exceed current industry practice."

David W. Glenn, Vice Chairman and President, said, "Solid portfolio growth, stable margins and continued credit strength drove our performance during the year. We recorded high-quality, double-digit portfolio growth in both lines of business, and our credit losses for the year represented just over 1 basis point of our total mortgage portfolio."

Glenn added, "Worldwide demand for our debt remains strong. During the year, we issued nearly $60 billion in dollar-denominated Reference NotesSM. In addition, our innovative EuroReference NoteSM Programme met an outstanding reception, becoming one of the most active, liquid issues on the Euro bond market."

Revenues

Freddie Mac's total revenues for 2000 reached $4.457 billion, a 10 percent increase over 1999 total revenues of $4.055 billion. For fourth quarter 2000, total revenues were $1.159 billion, an increase of 10 percent over fourth quarter 1999 total revenues of $1.049 billion, and up from $1.125 billion in third quarter 2000.

Net interest income on earning assets totaled $2.838 billion for 2000, a 12 percent growth from 1999 net interest income on earning assets of $2.540 billion. The increase in net interest income for full-year 2000 was driven by a $53.5 billion, or 18 percent, increase in the average balance of the retained portfolio. Net interest income on earning assets grew to $738 million in fourth quarter 2000, compared to $664 million in fourth quarter 1999 and $737 million in third quarter 2000. The increase in net interest income from third quarter 2000 was driven by a $15.7 billion, or 4 percent, increase in the average balance of the retained portfolio.

For full-year 2000, on a fully taxable equivalent (FTE) basis, the net interest yield on earning assets was 0.75 percent, compared to 0.80 percent in 1999. In fourth quarter 2000, FTE net interest yield was 0.74 percent, compared to 0.80 percent in fourth quarter 1999 and 0.77 percent in third quarter 2000.

In 2000 recognized net gains on hedging activities, which are reported as part of Other income, net, totaled $71 million and contributed 2 basis points to the full-year FTE comprehensive net interest yield. In 1999 recognized net hedging gains were $22 million and had a 1 basis point impact on FTE comprehensive net interest yield.

In fourth quarter 2000, recognized net hedging gains totaled $13 million and contributed 1 basis point to FTE comprehensive net interest yield. In fourth quarter 1999, recognized net hedging gains totaled $5 million and contributed 1 basis point to the quarter's FTE comprehensive net interest yield. For third quarter 2000, recognized net hedging gains totaled $2 million and had no effect on the quarter's FTE comprehensive net interest yield.

In 2000 management and guarantee fee income totaled $1.489 billion, a 6 percent increase over 1999 management and guarantee fee income of $1.405 billion. The average balance of Total PCs increased by $62 billion, or 9 percent in 2000, and the average guarantee fee rate for 2000 was 19.3 basis points, compared to 19.8 basis points in 1999.

Management and guarantee fee income totaled $383 million in fourth quarter 2000, compared to $362 million in fourth quarter 1999 and $372 million in third quarter 2000. During fourth quarter 2000, the average balance of Total PCs increased by $29 billion, or 4 percent from third quarter 2000, while the average guarantee fee rate was 19.1 basis points, compared to 19.2 basis points in third quarter 2000.

Other income, net, totaled $130 million in 2000, compared to $110 million in 1999. In fourth quarter 2000, Other income, net, was $38 million, up from $23 million in fourth quarter 1999 and $16 million in third quarter 2000. Other income, net, which generally includes resecuritization fees and gains and losses related to certain hedging and investment activities, may fluctuate from period to period.

Credit

Full-year 2000 credit-related expenses (the provision for mortgage losses plus REO operations expense) totaled $106 million, down 33 percent from 1999. The provision for mortgage losses was reduced 33 percent from $60 million in 1999 to $40 million in 2000, while REO operations expense decreased 33 percent from $99 million in 1999 to $66 million in 2000.

Fourth quarter 2000 credit-related expenses totaled $25 million, compared to $40 million for fourth quarter 1999 and $21 million for third quarter 2000. The provision for mortgage losses was $10 million for fourth quarter 2000, compared to $15 million for fourth quarter 1999 and unchanged from third quarter 2000.

In 2000 total mortgage charge-offs were $28 million, down from $56 million in 1999. Single-family charge-offs were $32 million, down from $59 million in 1999. Multifamily recoveries of amounts previously charged off totaled $4 million in 2000, compared to $3 million in 1999.

In fourth quarter 2000, mortgage charge-offs were $6 million, compared to $10 million in fourth quarter 1999 and unchanged from third quarter 2000. Fourth quarter 2000 single-family charge-offs were $8 million, compared to $9 million in fourth quarter 1999 and $7 million in third quarter 2000. Multifamily recoveries were $2 million in fourth quarter 2000, compared to $1 million of charge-offs for fourth quarter 1999 and $1 million of recoveries in third quarter 2000.

For full-year 2000, credit losses (charge-offs plus REO operations expense) represented 1.1 basis points of the average total mortgage portfolio (excluding non-Freddie Mac securities), compared to 2.0 basis points in 1999. Annualized fourth quarter 2000 credit losses were 1.0 basis point of the average total mortgage portfolio, compared to 1.8 basis points in fourth quarter 1999 and 0.8 basis points in third quarter 2000.

At December 31, 2000, total REO balances were $348 million, down from $438 million at December 31, 1999 and $364 million at September 30, 2000. Single-family REO balances were $346 million at December 31, 2000, down from $437 million at December 31, 1999 and $363 million at September 30, 2000. Multifamily REO balances were $2 million at December 31, 2000, up from $1 million at both December 31, 1999 and September 30, 2000.

Administrative Expenses

In 2000 administrative expenses totaled $713 million, compared to $655 million in 1999. Annualized administrative expenses represented 8.0 basis points of the average total mortgage portfolio in 2000, compared to 8.1 basis points in 1999. Fourth quarter 2000 administrative expenses were $184 million, compared to $167 million in fourth quarter 1999 and $180 million in third quarter 2000. Annualized administrative expenses represented 7.9 basis points of the average total mortgage portfolio in fourth quarter 2000, compared to 7.8 basis points for the same period a year ago and 8.0 basis points in third quarter 2000.

Capital

The corporation's primary capital base (stockholders' equity plus the reserve for mortgage losses) totaled $15.621 billion at December 31, 2000, compared to $12.297 billion at December 31, 1999 and $13.972 billion at September 30, 2000.

Extraordinary Item

Freddie Mac recorded net after-tax gains of $8 million (or $0.01 per diluted common share) in 2000 as a result of the repurchase of debt, compared to net after-tax gains of $5 million (or $0.01 per diluted common share) in 1999. In fourth quarter 2000, there were no gains or losses on the repurchase of debt. During fourth quarter 1999, net after-tax gains from the repurchase of debt totaled $8 million (or $0.01 per diluted common share). During third quarter 2000, net after-tax gains from the repurchases of debt totaled $3 million (no impact on a diluted common share basis).

Conference Call

Freddie Mac will host a conference call discussing the corporation's fourth quarter 2000 results today at 5 p.m. eastern time. The conference call will be web cast live on Freddie Mac's web site at www.freddiemac.com.A telephone recording of this conference call will be available continuously beginning at 11:00 p.m. eastern time Thursday, January 18, 2001 until midnight Thursday, February 1, 2001. To access this recording, call 1-800-475-6701 and use access code 564677.

Freddie Mac's quarterly announcements of earnings results sometimes contain forward-looking statements pertaining to management's current expectations as to Freddie Mac's future business plans, results of operations and/or financial condition. Management's expectations for the corporation's future necessarily involve a number of assumptions and estimates, and various factors could cause actual results to differ materially from these expectations. These assumptions and factors are discussed in the corporation's Annual Report to Shareholders and its Information Statement and quarterly Information Statement Supplements.

Freddie Mac is a stockholder-owned corporation established by Congress in support of homeownership and rental housing. Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage passthrough securities and debt instruments in the capital markets. Over the years, Freddie Mac has opened doors for one in six homebuyers in America.

Freddie Mac's earnings releases and other financial disclosures are available on the Shareholders' page of our World Wide Web site at www.freddiemac.com. Fourth Quarter Income Statement

Source: Freddie Mac



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