By Richard Leong
May 3 (Reuters) - Fannie Mae said on Thursday its net income rose to $4.26 billion in the first quarter from $2.77 billion a year ago as a result of a hefty gain on its derivatives.
The No. 1 U.S. mortgage financing company swung back from a net loss of $6.53 billion in the fourth quarter due to a $9.9 billion writedown of its deferred tax assets tied to the sweeping federal tax overhaul enacted last December.
"Our solid first quarter performance reflects the strength of our underlying business, the benefits of our business model, and our focus on customers," Fannie Mae President and Chief Executive Officer Timothy Mayopoulos said in a statement.
In September 2008 the government took control of Fannie and Freddie Mac in a $187 billion bailout during the global credit crisis after they were exposed to soured subprime mortgages. The two agencies have handed over their profits to the U.S. Treasury under the terms of the conservatorship.
The Washington-based company said it expects to pay the U.S. Treasury $938 million in a dividend by June 30.
The Federal Housing Finance Agency, Fannie and Freddie's regulator, reinstated a $3 billion capital buffer for each company in response to the tax rewrite.
Freddie, which earned $2.93 billion in the first quarter, will not pay a dividend to the Treasury from the latest period.
Fannie and Freddie make money by charging fees to guarantee home loans made by banks and other lenders. They also earn income from investing in mortgage and related securities.
Fannie's net interest income dipped to $5.23 billion from $5.35 billion in the first quarter in 2017. In the fourth quarter, net interest income was $5.11 billion.
The latest quarter's derivatives gain stemming from the rise in interest rates was $1.05 billion, compared with a loss of $40 million a year earlier and a loss of $191 million in the fourth quarter. (Reporting by Richard Leong Editing by Jeffrey Benkoe)