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Summary
Trends and Results -
Fourth Quarter 2006
| Financial Results |
Comments |
| I. Financial
Statements |
- During the past three years, the DIF has reported negative
loss provisions totaling $466 million that resulted from reductions
in the estimated losses for active receiverships. This amount has contributed
more than 1 basis point to the current reserve ratio of 1.22 percent
(as reported as of 9/30/06, the most recent period for which the ratio
is available). The downward adjustments to these estimated losses stemmed
from unanticipated recoveries from tax refunds, criminal restitution
orders, and professional liability claims that were not reflected in
the receiverships' estimated losses due to significant uncertainties
surrounding collection. In addition, another factor that contributed
to the lower estimated losses was reductions in the receiverships' potential
liabilities for litigation and guarantees. In future years, absent any
new, substantial failure activity, the DIF is not expected to recognize
additional negative loss provisions of this magnitude since two-thirds
of the remaining 25 active DIF receiverships are expected to substantially
complete liquidation activities in 2007.
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| II. Investments |
- The DIF portfolio’s book value (amortized historical cost)
increased by 3.9 percent during 2006, and totaled $48.858 billion on December
31, 2006. Moreover, while the securities that were purchased during 2006
had slightly lower yields than maturing securities, this factor was more
than offset by higher yielding overnight investments. Consequently, the
DIF portfolio’s yield increased by 7 basis points during 2006, rising
to 4.89 percent as of December 31, 2006, from 4.82 percent as of December
31, 2005.
- Treasury market yields are expected to continue to generally
trade within the range exhibited during the fourth quarter of 2006, but
with consensus expectations for a modest rise from year-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
Treasury market yields will accelerate the erosion of existing net unrealized
gains on 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 $961 million was spent in the Ongoing Operations
component of the 2006 Corporate Operating Budget, which was $23 million
(2 percent) below the budget for the twelve months ending December 31,
2006. Expenses in the Outside Services – Personnel expense category were
nearly $16 million (10 percent) below the annual budget, and expenses in
the Equipment category were approximately $1 million (3 percent) over the
annual budget.
- Approximately $12 million was spent in the Receivership
Funding component of the 2006 Corporate Operating Budget, which was
$63 million (84 percent) below the budget for the twelve months ending
December 31, 2006. Expenses in the Outside Services – Personnel
category were $51 million (82 percent) below the annual budget due
to limited receivership and resolution activity during the year.
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