WASHINGTON - Despite plunging loan volumes, Freddie Mac earned 11% more than a year earlier in the first quarter.
The total was $258 million, slightly more than the fourth quarter's $252 million.
"Freddie Mac once again produced record earnings," said Leland C. Brendsel, chairman and chief executive.
He also threw in a pitch for the company's new automated underwriting services, saying Loan Prospector, introduced during the quarter, "represents another step in our 25-year history of making the mortgage finance process faster, more accessible, and less costly."
Profit growth at Freddie Mac - formally the Federal Home Loan Mortgage Corp. - was fueled by expansion of the portfolio of mortgages it has purchased. The agency has been aggressively building its loan portfolio in recent quarters, because these loans yield higher returns than those it packages into securities.
Net interest income, which consists largely of interest from the portfolio, totaled $312 million, 14% more than a year earlier and 9% more than in the fourth quarter.
With the sharp fall in the volume of fixed-rate loans, Freddie Mac - like rival Fannie Mae, the Federal National Mortgage Association - expanded its portfolio through selective purchases of its own mortgage- backed securities.
Freddie Mac's portfolio grew at an annual rate of 25% in the quarter, to $77.3 billion - 31% more than a year earlier.
Analysts contrasted Freddie Mac's strong earnings favorably to those reported last week at Fannie Mae, which barely edged up to maintain its record of earnings increases for 29 quarters.
They said the earnings demonstrated Freddie Mac's advantage as the smaller of the two mortgage agencies in a shrinking market.
As the mega-volumes of fixed-rate refinanced loans dried up last year, Fannie Mae too bolstered earnings by increasing its portfolio. But because that portfolio is almost three times as large as Freddie's, percentage growth is slower. Fannie's portfolio grew at an annual rate of 3.5% in the first quarter, to a level 13% higher than a year earlier.
Net interest income at Fannie Mae of $708 million was 6.6% above that of first-quarter 1994, but below the fourth-quarter level because of declining margins.
Guaranty fees at Freddie Mac totaled $276 million in the first quarter, up from $272 million a year earlier but below the fourth quarter's $278 million.
Other income at Freddie Mac, which includes income from Remic securities, totaled $13 million, 64% below the year-earlier figure but ahead of the fourth quarter's $8 million. Freddie said the decline from a year earlier mostly reflects lower Remic volumes.
As with Fannie Mae's earnings, analysts emphasized that Freddie Mac is headed for strong performance the rest of the year.
"Freddie Mac's growth prospects in the event of a gradual slowdown in the economy are very strong, making the stock a relative outperformer in the market," said Bruce Harting of Salomon Brothers.
The increase in the relative share of fixed-rate loans, the staple of business at the mortgage agencies, will boost earnings at Fannie Mae and Freddie Mac for the rest of the year, analysts said.
"We're coming out of a very difficult period for these companies," said Thomas O'Donnelll of Smith Barney. "They handled it well. It was easier for Freddie than Fannie."
