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22 EARNINGS SEASON A LOOK AT THE LATEST EARNINGS NEWS FOR Q3. FANNIE MAE, FREDDIE MAC PROFIT GROWTH SLOWS IN Q3 Fannie Mae and Freddie Mac are set to send another $6.8 billion to the U.S. Treasury after post- ing a mild increase in profits for the third quarter. For its part, Fannie Mae reported net income of $3.9 billion for the third quarter, up from a profit of $3.7 billion in Q2 but down from $8.7 billion from a year ago. According to Fannie Mae, the increase was driven primarily by lower fair value losses and an increase in revenues. Also contributing to the third-quarter boost in profits was a recently announced settlement between Goldman Sachs and the GSEs' conservator, the Federal Housing Finance Agency (FHFA), over faulty residential mortgage-backed securities (RMBS). In a sour sign for the housing market, a shrinking portion of Fannie Mae's earnings stemmed from credit-related income—$836 mil- lion compared to $1.9 billion the prior quarter. e company said the decrease was mostly due to a decline in its benefit for credit losses as home price appreciation continues to slow. Fannie Mae also acknowledged that a growing share of its revenues in recent years have come from increases in guaranty fees, a trend the company expects will continue as its mortgage portfolio contracts. Meanwhile, Freddie Mac reported net income of $2.1 billion for Q 3, up from $1.4 bil- lion the prior three-month period. e company attributed the increase to lower derivative losses (stemming from an upturn in long-term interest rates) and the same RMBS settlement that benefited Fannie Mae. ose improvements were counterbalanced against a drop in Freddie Mac's provision for credit losses "driven by a slight worsening in loss severity," the company said. As a result of their profitable quarter, Fannie Mae says it expects to pay $4 billion in dividends to Treasury in December, while Freddie Mac will pay $2.8 billion. By the end of this year, the two GSEs, which have been in conservatorship since 2008, will have returned a combined $225.5 billion to tax- payers—nearly $40 billion more than the amount the two companies were forced to draw to keep afloat in the aftermath of the financial crisis. Despite that, the GSEs' agreement with the government stipulates they must continue to pay. at agreement has drawn the ire of the com- panies' shareholders, some of whom are trying to take the government to court on claims it has robbed them of their share of the profits and kept the GSEs from being able to return to normalcy. Meanwhile, Washington continues to debate on what should happen to the two mortgage gi- ants as policymakers work to revive private-label securitization and diminish the government's role in the market. While there has been some support for plans to wind down the GSEs and replace them with a government corporation, those plans remain up in the air in the wake of Republicans' takeover of the Senate. CITIGROUP REPORTS 7 PERCENT NET INCOME GROWTH IN Q3 Citigroup reported an increase of 7 percent in its net income from $3.2 billion up to $3.4 billion year-over-year in the company's 2014 ird Quarter Earnings Report. e net income increase was driven by higher revenues and a decline in credit costs and was partially offset by higher operating expenses. Excluding credit value adjustment/debit value adjustment (CVA/DVA) in both periods and the tax benefit from the prior year, Citigroup's net income for Q 3 was $3.7 billion, representing a 13 percent year-over-year increase. Overall, Citigroup's revenues increased by 9 percent year-over-year in Q 3, up to $19.6 billion. Without CVA/DVA, the company reported revenues of $20 billion, which marked a 10-percent increase from the same period in 2013. e revenue increase was driven by Citicorp revenue growth of 8 percent and an increase in Citi Holdings revenues of 30 percent. Citigroup's loans and deposits were each down by 1 percent in Q 3 from the same period in 2013. Loans dropped slightly to $654 billion while deposits fell to $943 billion. Citigroup's loans increased by 1 percent and deposits remained largely unchanged on a constant dollar basis, however. Declines in Citi Holdings, driven mostly by the North America mortgage portfolio, partially offset growth in Citicorp. Global Consumer Banking (GCB) revenues in North America climbed by 5 percent in Q 3 from the prior year up to $5 billion, reporting higher revenues in retail banking, Citi-branded cards, and Citi retail services. Revenues for retail banking jumped by 9-percent from Q 3 2013 to Q 3 2014, an increase that reflects a 9-percent leap in average loans and a 2-percent hike in average deposits. e gains in retail banking also reflect higher revenues in the U.S. mortgage business driven by an approximate $50 million repurchase reserve release in Q 3. GCB net income in North America was reported at $1.2 billion in Q 3, an increase of 33 percent from Q 3 2013. Citi-branded cards revenues moved slightly upward by 1 percent up to $2.1 billion for Q 3, and revenues for Citi retail services jumped up by 8 percent to $1.6 billion, largely driven by the acquisition of the Best Buy portfolio. Citi Holdings reported a net income of $238 million in Q 3, compared with a net loss of $115 million from the same period a year ago. Excluding CVA/DVA, Citi Holdings' net income was $272 million compared with a net loss of $113 million in Q 3 2013. e gains in Q 3 2014 were driven by higher revenues, lower operating expenses, and lower net credit losses. Net credit losses experienced a 45-percent decline in Q 3 from the previous year, down to $347 million, fueled by improvements in the North America mortgage portfolio. e net loan loss reserve release plummeted by 79 percent in Q 3 year-over- year, mostly due to the North America mortgage portfolio-related lower releases. Citigroup reported an earnings per share of $1.07 for Q 3, an amount that increased to $1.15 per share excluding CVA/DVA.

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