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Summary
Trends and Results -
First Quarter 2006
| Financial Results |
Comments |
| I. Financial
Statements |
- The DIF reserve ratio declined by seven basis points from
December 31, 2004, to 1.25 percent as of December 31, 2005. In 2005,
estimated insured deposits grew by 7.5 percent (a 19-year high) while
the fund balance grew by only 2.3 percent. If anticipated failures remain
at historically low levels, Treasury yields rise moderately, and estimated
insured deposit growth continues at rates experienced during 2005, the
DIF reserve ratio is projected to fall below 1.25 percent by December
31, 2006.
- For the first quarter ending March 31, 2006, the DIF’s
coverage ratio (interest revenues/operating expenses) was 2.13 percent,
which is a moderate decline from the 2005 coverage ratio of 2.42 percent.
This decline in the coverage ratio stemmed largely from the recognition
of negative inflation compensation on the TIPS portfolio in January
and February 2006 (which reduced interest revenue), which resulted
from a decrease in the Consumer Price Index that occurred in the last
two months of 2005. This ratio is expected to moderately increase
by year-end 2006 assuming that interest revenue continues to increase
and operating expenses are less than the 2005 level.
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| II. Investments |
- The DIF portfolio’s par value increased during the first
quarter of 2006. Moreover, while the securities that were purchased during
the quarter had slightly lower yields than maturing securities, this
factor was more than offset by higher yielding overnight investments. Consequently,
the DIF portfolio’s yield increased by four basis points during the
first quarter, rising to 4.86 percent from 4.82 percent.
- Expectations are for Treasury market yields to rise modestly,
which should lead to increased interest revenue over the long run. Over
the short run, increasing yields will accelerate the erosion of existing
net unrealized gains on AFS securities. Moreover, regardless of changes
in yields, existing net unrealized gains will be reduced due to the passage
of time.
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| III. Budget |
- Approximately $220 million was spent in the Ongoing Operations
component of the 2006 Corporate Operating Budget, which was $13 million
(6 percent) below the budget for the three months ending March 31, 2006.
The Outside Services - Personnel expense category was more than $8 million
below its year-to-date budget, and represents 64 percent of the total
Ongoing Operations variance.
- Approximately $2 million was spent in the Receivership Funding
component of the 2006 Corporate Operating Budget, which was $16 million
(87 percent) below the budget for the three months ending March 31, 2006.
The Outside Services - Personnel expense category was $14 million below
its year-to-date budget, and represents 84 percent of the total Receivership
Funding variance.
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