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Summary
Trends and Results - Second Quarter 2010
| Financial
Results |
Comments |
| I.
Financial Statements |
- As illustrated
in the first graph on page 10, the fund balance has decreased
since 2008 due to estimated losses
from actual bank failures, as well as contingent liabilities
for future failures. Over the past two quarters, however,
the fund balance has improved modestly—though it remains
negative. The DIF’s contingent liabilities for future
failures have similarly moderated recently. The DIF’s
available cash increased dramatically in the fourth quarter
of 2009 due to the collection of approximately three years
of prepaid assessments, which was effected to ensure that
the DIF would have adequate liquidity to resolve future failures.
Current cash flow projections indicate that the DIF continues
to have sufficient cash to resolve expected failures.
- Observations
from recent bank resolutions suggest some moderation in
expected losses on failed bank assets
compared with earlier periods of the current crisis. These
indications include lower discounts in recent loss-share
deals, increased numbers of bids in recent LLC deals with
lower loss rate assumptions, and stable asset valuations
for recent liquidations.
- The second graph on page 10 shows the cash outlays
made by the DIF to cover brokered deposits not assumed by
acquiring institutions. These outlays were particularly high
in the second quarter of 2010 due to the three Puerto Rico
institutions that failed at the end of April, where brokered
deposits made up an above-average share of their total deposits.
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| II.
Investments |
- The
total liquidity (market value plus accrued interest) of
all DIF-related investment portfolios (the DIF investment
portfolio and the systemic-risk-related investment portfolios)
stood at $44.0 billion on June 30, 2010, down from $66.1
billion on December 31, 2009, led primarily by the decline
in the DIF investment portfolio as discussed below.
- The
DIF investment portfolio’s amortized
cost (book value) decreased by $21.2 billion during the first
half of 2010, and totaled $38.1 billion on June 30, 2010.
The decrease was the result of having to fund 86 bank failures
during the first half of the year, although it should be
noted that 73 of these failures were resolved as loss-share
transactions that required little or no initial resolution
funding, and thus helped to mitigate the decline in the DIF
portfolio’s balance. Moreover, during the first half
of 2010, the DIF received $4.1 billion in dividends, repayments
of borrowings, and expense reimbursements from its receiverships.
These receipts also helped to mitigate the DIF portfolio’s
decline. Nevertheless, the DIF portfolio’s balance
is expected to continue to decline over the next few quarters.
- At
the end of the second quarter, the DIF investment portfolio’s
yield was 0.62 percent, up 13 basis points from its December
31, 2009, yield of 0.49 percent. Although $2.7 billion
in generally higher-yielding securities matured during
the first half of the year, this reduction in yield was
more than offset by two factors. First, the yield on overnight
investments increased considerably, rising from 0.02 percent
on December 31, 2009 to 0.09 percent on June 30, 2010.
Second, overnight investments comprised a much smaller
percentage of the DIF portfolio by the end of the second
quarter.
- Short-maturity Treasury yields remained stable
during the second quarter of 2010, while longer-maturity
Treasury yields posted dramatic declines. Overall, Treasury
yields remain at historically low levels, reflecting such
factors as subdued inflation trends and stable inflation
expectations, as well as the ultra-low federal funds target
rate and continuing investor expectations that the rate will
remain low for some time. Moreover, the recent declines in
longer-maturity Treasury yields reflect continuing concerns
over the European debt crisis and the weakening Euro, as
well as new concerns over signs of a potential slowdown in
global economic growth. Nevertheless, according to consensus
expectations, Treasury yields are expected to increase modestly
during the remainder of 2010 and during 2011.
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| III.
Budget |
- Approximately
$664.8 million was spent in the Ongoing Operations component
of the 2010 Corporate Operating Budget,
which was $39.9 million (6 percent) below the budget for
the six months ending June 30, 2010. Actual expenses in the
Salaries and Compensation and Outside Services – Personnel
categories were both about $13 million below their year-to-date
budgets and accounted for most of this variance.
- Approximately $1.0 billion was spent in the Receivership
Funding component of the 2010 Corporate Operating Budget,
which was $10.5 million (1 percent) above the budget for
the six months ending June 30, 2010. Actual expenses exceeded
the year-to-date budgets by $103.1 million in the Other
Expenses category, $41.3 million in the Outside Services – Other
category, and $27.9 million in the Buildings category.
This over-spending was largely offset by under-spending
in the Outside Services – Personnel and Salaries
and Compensation categories of $126.8 million and $21.7
million, respectively.
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