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Summary
Trends and Results -
First Quarter 2008
| Financial Results |
Comments |
| I. Financial
Statements |
- The DIF fund balance is projected to increase by $2.8 billion,
from $52.4 billion at year-end 2007 to $55.2 billion by year-end 2008.
Assuming assessable and insured deposit growth of four percent, the
reserve ratio is projected to reach the 1.25 percent designated reserve
ratio early in 2009. The main component of the fund balance increase
is net assessment revenue, which reaches $2.7 billion in 2008 as the
available assessment credits continue to be depleted. Also contributing
to the increase is investment income exceeding operating expenses by
$1.2 billion in 2008. Provision for insurance losses (including losses
from failures) reduces the increase in comprehensive income and is
projected to rise in 2008 to $1.1 billion.
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II. Investments |
- The DIF investment portfolio’s amortized cost (book value)
increased by 1.49 percent during the first quarter of 2008, and totaled
$51.219 billion on March 31, 2008. At quarter end, the DIF’s portfolio
yield was 4.45 percent, down about 27 basis points from its December 31,
2007, yield of 4.72 percent. A large factor behind this decline was that
securities totaling $3.040 billion with a high weighted average yield of
5.77 percent matured during the first quarter. During the quarter, staff
deferred purchases of conventional Treasury securities in light of depressed
Treasury yields. All available funds were invested in overnight investments.
At quarter end, overnight investments totaled $8.079 billion, or about
14.8 percent of the total portfolio as measured by market value. During
the quarter, overnight investments averaged about 2.65 percent on a bond
equivalent basis. However, on March 31, 2008, overnight investments had
a bond equivalent yield of 1.45 percent. Thus, the DIF portfolio’s
average yield at quarter-end reflected a large amount of previously high
yielding Treasury securities now being invested in lower yielding overnight
investments.
- Treasury market yields declined dramatically during the
first quarter of 2008, reflecting concerns over the U.S. economy possibly
heading into recession and reflecting the substantial cuts in the
federal funds target rate; the rate was cut three times during the
quarter, for a total decline of 200 basis points, from 4.25 percent
to 2.25 percent. Treasuries also rallied in response to “flight
to quality” trades by investors seeking the safety of Treasuries
in the face of financial market turmoil. During the second quarter
of 2008, Treasuries are expected to trade generally within the range
exhibited during the last few weeks of the first quarter, as many
investors are expecting further reductions in the federal funds target
rate and are concerned the U.S. economy may already be in a recession.
- At the end of the first quarter of 2008, the DIF portfolio’s
available-for-sale (AFS) securities had unrealized gains of $485.9
million. Market consensus expectations are for Treasury yields to
gradually rise
over the second half of 2008, which would likely reduce these unrealized
gains. However, regardless of changes in yields, existing net unrealized
gains will be reduced due to the passage of time (that is, any unrealized
gains or losses vanish as AFS securities approach their maturity dates).
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| III. Budget |
- Approximately $235 million was spent in the Ongoing Operations
component of the 2008 Corporate Operating Budget, which was $23 million
(9 percent) below the budget for the three months ending March 31,
2008. The Outside Services - Personnel expense category was approximately
$10 million below its year-to-date budget, and the Salaries and Compensation
category was almost $8 million below its year-to-date budget. Together,
these two categories represented 78 percent of the total Ongoing Operations
variance.
- Approximately $9.4 million was spent in the Receivership
Funding component of the 2008 Corporate Operating Budget, which was
$9.3 million (50 percent) below the budget for the three months ending
March 31, 2008. The Outside Services - Personnel expense category
was $9.1 million below its year-to-date budget, and represented 97
percent of the total Receivership Funding variance. The variance
was primarily due to the limited receivership and resolution activity
during the quarter.
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