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Summary
Trends and Results -
Second Quarter 2006
| Financial Results |
Comments |
| I. Financial
Statements |
- Reforms enacted under the Federal Deposit Insurance Reform
Act of 2005 will lead to significant changes in the risk-based assessment
system beginning in 2007. In a July 2006 notice of proposed rulemaking,
the FDIC proposed a base schedule of risk-based assessment rates ranging
from 2 to 40 basis points. The FDIC has proposed to continue allowing
the Board to adjust rates uniformly up to a maximum of five basis points
higher or lower than the base rates without the need for further notice-and-comment
rulemaking, provided that any single adjustment from one quarter to
the next cannot move rates by more than five basis points. If the Board
sets actual rates equal to the base rates, net assessment revenue for
2007 is estimated to range from $250 million to $300 million (compared
to $61 million earned in 2005) after applying the one-time assessment
credit. Should strong insured deposit growth continue, the reserve ratio
is likely to continue falling from its most recent reported level of
1.23 percent (as of March 31, 2006). Therefore, absent a significant
slowdown in insured deposit growth and depending on the Board’s
decision regarding the advisability of allowing lower reserve ratio
levels to prevail, there is a possibility that the Board may adopt actual
rates for 2007 later this year that are higher than the base rates.
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| II. Investments |
- The DIF portfolio’s par value increased 1.6 percent during
the first half of 2006. Moreover, while the securities that were purchased
during the first half of the year had lower yields than maturing securities,
this factor was more than offset by higher yielding overnight investments.
Consequently, the DIF portfolio’s yield increased by seven basis points
during the first half, rising to 4.89 percent from 4.82 percent.
- Expectations are for Treasury market yields to continue to rise,
but just modestly. This, coupled with a growing DIF portfolio balance,
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 available-for-sale (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 $457 million was spent in the Ongoing Operations
component of the 2006 Corporate Operating Budget, which was $12 million
(3 percent) below the budget for the six months ending June 30, 2006.
Expenses in the Outside Services – Personnel expense category were
nearly $15 million below the year-to-date budget, and expenses in the Salaries & Compensation
category were approximately $3 million over the year-to-date budget.
- Approximately $8 million was spent in the Receivership
Funding component of the 2006 Corporate Operating Budget, which was
about $29 million (78 percent) below the budget for the six months
ending June 30, 2006. Expenses in the Outside Services – Personnel
category were $23 million (76 percent) below the year-to-date budget
due to limited receivership and resolution activity during the first
half of the year.
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