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Executive
Summary -
Second Quarter 2005
This report highlights the
Corporation's financial activities and results for both the three-month
and six-month periods ending June 30, 2005.
- Overall,
the deposit insurance funds remained financially sound and
exhibited healthy earnings during both the first and second
quarters of 2005.
Additionally, estimated losses from probable failures at the
end of the second quarter remain at or near historically low
levels for
both deposit insurance funds. Reserve ratios remain moderately
above the 1.25 designated reserve ratio (DRR), however, if
insured deposit
growth continues to increase in line with recent historical
average rates, it is likely that the funds’ reserve ratios
will trend lower going forward. As of March 31, 2005, BIF’s
and SAIF’s
reserve ratios were 1.27 percent and 1.32 percent, respectively.
(Estimated insured deposit data as of June 30, 2005, are not
yet available.)
- BIF’s and SAIF’s operating expense (OPEX)
coverage ratios (Interest Revenue/Operating Expenses), which had generally
been on the decline since 2001, have modestly increased during
the second
quarter of 2005 and may increase further going forward with the
potential
for generally steady-to-higher investment portfolio interest revenue
and steady-to-lower operating expenses.
- Market expectations are for Treasury market yields to rise, which
should lead to increased interest revenue over the long run. Over the short
run, increasing yields will accelerate the erosion of the existing net unrealized
gains on available-for sale (AFS) securities held in both funds’ investment
portfolios. Moreover, regardless of changes in yields, existing net unrealized
gains will be reduced due to the passage of time.
- For
the six months ending June 30, 2005, operating- and investment-related
expenditures ran below budget by approximately six percent and five percent,
respectively. The variance with respect to the operating budget was primarily
the result of limited resolutions and receivership activity in the Receivership
Funding component of the operating budget through the second quarter.
- A total of 565 employees
accepted the Corporation’s recent
buyout, with 480 employees separating from the Corporation by June
30, 2005, (the departures of the remaining 85 employees were delayed
due
to workload considerations, but all are scheduled to leave the
Corporation by September 30, 2006.) The number of employees accepting
buyouts in
the Division of Information Technology (DIT) substantially exceeded
expectations, permitting the Corporation to avoid a reduction-in-force
in DIT. The
cost of buyout payments caused the Corporation to exceed its year-to-date
budget for the Salaries and Compensation category, but we expect
all divisions to be within their budgets for this category by the end
of
2005 as we realize the savings from buyout-related departures in
the latter half of the year.
- The core financial modules
of the New Financial Environment (NFE) and interfacing legacy systems
were successfully implemented in early May
of 2005. This implementation was the result of a multi-year effort
by the FDIC to modernize its aging, highly-customized, and complex
financial
systems environment. The NFE project scope involved implementing
14 PeopleSoft® modules
and tool sets of financial business functionality, changing 23 existing
financially-related systems to work with the new business processes and
accounting codes, absorbing the functions performed by 37 legacy systems
into the new PeopleSoft® modules, and coordinating closely with other
information systems development efforts that interface with the
NFE.
On
the pages following is an assessment of each of the three major finance
areas:
financial statements, investments, and budget.
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