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Summary
Trends and Results -
Third 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. On November 2, 2006, the FDIC Board approved
a risk-based assessment rate schedule ranging from 5 to 43 basis points.
The FDIC Board may adjust rates uniformly up to a maximum of 3 basis
points higher or lower than the base rates (which are 2 to 40 basis
points) 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 3 basis points and rates cannot be negative.
Based on the new assessment rates, the net assessment revenue for 2007
is estimated at just over $600 million (compared to $61 million earned
in 2005) after applying almost $3.2 billion of the aggregate one-time
assessment credit of $4.7 billion. Furthermore, beginning in the first
quarter of 2007, the FDIC is changing from a system in which each institution’s
assessment is determined in advance of the period being insured to one
in which the assessment is determined after each quarter being insured.
(This operational change should not materially affect the reserve ratio
because, consistent with the concepts of generally accepted accounting
principles, FDIC will recognize assessment revenue in advance of receipt
based on a reliable estimate.)
- The FDIC projects that insured deposits will increase 6.6
percent in 2006 and result in a year-end reserve ratio of 1.21 percent.
(The early estimate for the reserve ratio as of September 30, 2006
is 1.22 percent.) In 2007, the FDIC expects insured deposit growth
to moderate to 5 percent. This rate of growth is still expected to
modestly outpace the growth in the fund balance (taking into account
new assessments and credit use), resulting in a further projected
decline in the reserve ratio to 1.20 percent as of year-end 2007.
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| II. Investments |
- The Deposit Insurance Fund (DIF) portfolio’s par value increased
by 2.9 percent during the first nine months of 2006. Moreover, while the
securities that were purchased during this period 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 six basis points during the first nine months of 2006, rising to 4.88
percent from 4.82 percent.
- Expectations are for Treasury market yields to continue to trade
within the range exhibited during the third quarter of 2006, but with consensus
expectations for a modest rise from third quarter-end levels. This, coupled
with a growing DIF portfolio balance, should lead to increased interest
revenue over the long run. Over the short run, any increase in 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 $685 million was spent in the Ongoing Operations
component of the 2006 Corporate Operating Budget, which was $29 million
(4 percent)
below the budget for the nine months ending September 30, 2006. Expenses
in the Outside Services – Personnel expense category
were nearly $26 million (23 percent) below the year-to-date budget, and
expenses in the Equipment category were approximately $4 million (13 percent)
under the year-to-date budget.
- Approximately $11 million was spent in the Receivership
Funding component of the 2006 Corporate Operating Budget, which was
$46 million (81 percent) below the budget for the nine months ending
September 30, 2006. Expenses in the Outside Services – Personnel
category were $37 million (79 percent) below the year-to-date budget
due to limited receivership and resolution activity during the year.
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