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I.
Corporate Fund Financial Statement Results -
Fourth Quarter 2006
DIF
- The DIF 2006 financial
statements reflect the implementation of a new accounting standard
(SFAS No. 158) that amends the recognition and reporting requirements
for FDIC's obligation associated with providing postretirement benefits
other than pensions (that is, life and dental insurance). The pronouncement
requires the separate reporting of this liability on the balance sheet
as well as the cumulative unrealized postretirement gains/losses (that
arise from changes in actuarial assumptions and plan provisions) in
the income statement as an addition/subtraction to comprehensive income.
As a result of implementing this new pronouncement, DIF reported a
postretirement benefit liability (present value of expected benefit
payments) of $130 million and an unrealized gain of $2 million as of
December 31, 2006. Prior to this change, the net postretirement benefit
liability totaling $127 million (comprised of both the benefit obligation
and the unrealized gains/losses) was included in the "Accounts
payable and other liabilities" line item. Hence, this reporting
change had little net effect on the DIF’s financial condition
as these amounts were previously reflected in the DIF’s statements.
For your information, we have included a graph at the bottom of page
10 that presents recent data related to this liability and the associated
gains/losses.
- DIF’s
comprehensive income rose by $173 million in the fourth quarter of
2006, down from $224 million for the same quarter last year. This $51
million decrease is largely attributable to a lower negative provision
for insurance losses of $30 million partially offset by higher earnings
on U.S. Treasury obligations of $16 million (interest income plus unrealized
losses).
- For 2006,
DIF’s comprehensive income totaled $1.6 billion compared to $1.1
billion for 2005, an increase of 44 percent. Excluding the recognition
of exit fees earned of $345 million (a one-time adjustment), comprehensive
income rose by $133 million from a year ago. This year-over-year increase
is primarily due to a decrease in the unrealized loss on available-for-sale
(AFS) securities of $348 million, which was offset by decreases in
both interest earned on U.S. Treasury obligations of $101 million and
the negative provision for insurance losses of $108 million.
- As noted above, DIF reported
a 4.3 percent ($101 million) decrease in interest income and a 66.8
percent ($348 million) decrease in
unrealized losses during 2006 compared to a year ago. The decline
in interest income
resulted from lower inflation compensation related to the DIF’s
holdings of Treasury Inflation-Protected Securities (TIPS). The lower
unrealized loss on AFS securities stemmed from a combination of a smaller
total market value of AFS securities and a smaller increase in market
yields, in addition to a lower duration for these securities held in
the DIF’s investment portfolio.
FRF
- FRF’s net loss was $203 million compared to an $826 million
loss for 2005. This change is primarily due to: 1) payments for Goodwill settlements
of $195 million in 2006 vs. $625 million a year ago, 2) the net effect of
$175 million in payments for Guarini litigation settlements and the reversal
of $230 million loss reserves in 2006 for these same cases, 3) estimated losses
for Goodwill litigation of $252 million, and 4) a $53 million increase in
interest income on U.S. Treasury obligations.
- During the fourth quarter of 2006, FRF accrued a $252 million
contingent liability and offsetting receivable from the U.S. Treasury
for judgments for two Goodwill cases that were fully adjudicated
as of year end. These funds were paid in January 2007. For the year ending
December 31, 2006, FRF paid or accrued a total of $447 million
in Goodwill
litigation expenses to resolve six cases, compared with a total
payment of $625 million on seven Goodwill cases during 2005.
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