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Summary
Trends and Results -
Second Quarter 2005
| Financial Results |
Comments |
| I. Financial Statements |
- Deposit insurance fund
reserve ratios remain moderately above the 1.25 designated reserve
ratio (DRR), however, if insured deposit
growth rates continue to increase in line with recent historical averages,
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. (The June 30,
2005, estimated insured deposit data is not yet available.)
- BIF’s fund balance increased by a modest $270 million
during the second quarter of 2005 (by approximately 0.8 percent) to
$35.1 billion while SAIF’s fund balance increased by $136 million
(1.1 percent) to $12.9 billion. As noted above, these rates of fund
growth may not be sufficient to offset the growth in BIF’s and
SAIF’s estimated insured deposits, thus
resulting in lower reserve ratios in the future.
- BIF’s and SAIF’s OPEX coverage ratios (Interest
Revenue/Operating Expenses), which had generally been on the decline
since 2001, have modestly increased during the first six months 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.
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| II. Investments |
- For the year to date, the BIF and SAIF portfolios’ book
values increased $845 million, or 1.87 percent. Moreover, through June
30, 2005, the BIF portfolio’s yield increased by nine basis points,
rising to 4.75 percent; similarly, the SAIF portfolio’s yield also
increased by 12 basis points, rising to 4.81 percent.
- Consensus 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 existing
net unrealized gains on 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.
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| III. Budget |
- Approximately $491 million was spent in the Ongoing Operations
component of the Corporate Operating Budget, which was approximately
$2 million (0.5 percent) greater than the budget for the six months ending
June 30, 2005. This variance is attributable to almost $22 million that
was expensed during that period for separation incentives under the recently-completed
employee buyout program. Those buyout costs caused Salary and Compensation
expenses through June 30, 2005, to exceed the year-to-date budget by
more
than $9 million. This variance will be offset by net Salary and Compensation
savings from the buyout during the third and fourth quarters.
- Approximately $4 million was spent in the Receivership Funding
component of the Corporate Operating Budget, which was about $33 million
(89 percent) below the budgeted level through the second quarter because
of the low level of resolutions and receivership management activity
during the first half of 2005.
- Spending on approved investment projects was $33 million, which
was $2 million (five percent) below estimated 2005 spending through the
second quarter on those projects. Detailed quarterly reports on the status
of those projects are provided separately to the Board by the Capital Investment
Review Committee for all information technology projects and by the Division
of Administration (DOA) for the Virginia Square Phase II project.
- The table on page 13 compares actual expenditures
to the approved Corporate Operating Budget by major expense
category and budget component for the six months ending
June 30, 2005. The table on page 14 compares actual expenditures
by each division/office to its combined operating and investment
budget/spending estimates for the same period.
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| Overall |
- During the first half of 2005, the deposit insurance fund balance
sheets and income statements continue to show solid results.
- Both insurance funds continue to experience strong cash flows.
- Both the bank and thrift industries are projected to remain relatively
healthy for the remainder of 2005.
- In the absence of a deceleration in the recent growth rate
of estimated insured deposits, the BIF reserve ratio may fall below the
designated reserve ratio, perhaps before the end of 2005.
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