updated 6/30/2004 4:52:29 PM ET 2004-06-30T20:52:29

Mortgage finance company Freddie Mac reported Wednesday that a drop in total non-interest income drove down 2003 earnings by 52 percent.

For 2003, Freddie Mac earned $4.9 billion, or $6.79 per share, a 52 percent decrease from the $10.1 billion, or $14.18 per share, reported for 2002.

The company said non-interest income results continue to be affected by changes in unrealized gains and losses, and changes in the level and volatility of interest rates have resulted in significant period-to-period earnings volatility.

Freddie Mac's non-interest losses in 2003 totaled $1.9 billion, compared with income of $5.6 billion in 2002 due to a significantly smaller mark-to-fair value gain on derivative instruments in 2003, losses on investment activity compared with gains of $1.8 billion in 2002, and a large increase in losses on debt retirements.

Net interest income was down slightly, totaling $9.5 billion in 2003, compared with $9.53 billion in 2002. Management and guarantee income rose to $1.6 billion in 2003 from $1.5 billion in 2002, driven by a 3 percent increase in the average balance of outstanding PCs and an increase in net amortization income.

Freddie Mac expects to publish its 2003 annual report in late September, and will provide quarterly and full-year financial results for 2004 by March 31, 2005. The company said it is committed to returning to timely financial reporting, following remediation efforts to correct accounting control issues. The company doesn't expect to buy back shares until some time after Freddie Mac resumes timely financial reporting.

The company said that during the first part of 2004, its retained portfolio purchases were low due to tight mortgage-to-debt option-adjusted spreads. Together with high liquidations, Freddie Mac said this has caused a decrease in its retained portfolio.

As a result, the company expects its net retained portfolio growth rate for full-year 2004 to be in the low single digits.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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