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Each depositor insured to at least $250,000 per insured bank

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Chief Financial Officer's (CFO) Report to the Board

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Summary Trends and Results - First Quarter 2009

Financial Results Comments
I. Financial Statements
  • During the past two quarters, the FDIC resolved ten institutions using a Whole Bank Purchase and Assumption resolution transaction with an accompanying Loss Share Agreement on the assets purchased by the acquirer. Under the terms of the agreement, losses on the covered assets will be shared between the acquirer and the FDIC in its Receivership capacity. As of March 31, 2009, DIF receiverships are estimated to pay approximately $2.8 billion over the length of these loss-share agreements (typically over 5 to 10 years) on approximately $17.9 billion in total covered assets. The estimated liability for loss sharing is accounted for by the receiver and is considered in the determination of the DIF’s allowance for loss against the corporate receivable from the resolution. As loss-share claims are asserted and proven, DIF receiverships will satisfy these loss-share payments using available liquidation funds and/or amounts due from the DIF for funding the deposits assumed by the acquirer. Through the end of the first quarter, the DIF receiverships have not made any loss-share payments.
II. Investments
  • The Deposit Insurance Fund (DIF) investment portfolio’s amortized cost (book value) decreased by $2.1 billion during the first quarter of 2009, and totaled $24.5 billion on March 31, 2009. The decline was largely the result of funding 21 failed institution resolutions during the first quarter. However, it should be noted that eight of this quarter’s bank and thrift failures were resolved as “whole bank” purchase and assumption transactions (in which the acquirers purchased all or substantially all of the failed institutions’ assets and the FDIC and the acquirers entered into loss-share transactions) requiring little or no initial resolution funding, thus helping to mitigate this quarter’s decline in the portfolio’s value. At quarter end, the DIF investment portfolio yield was 4.43 percent, down 16 basis points from its December 31, 2008, yield of 4.59 percent. The yield decline stemmed from several factors, notably the sale and maturity of generally higher yielding securities, as well as the DIF portfolio ending the quarter with a comparatively high overnight investment balance of $1.5 billion earning an ultra-low 0.04 percent yield. The high quarter-end overnight investment balance was largely attributable to the receipt of almost $1.1 billion in assessments on March 30, 2009.
  • The recently established Debt Guarantee Program investment portfolio [from the guarantee fees under the Temporary Liquidity Guarantee Program (TLGP)] increased from $2.4 billion on December 31, 2008, to $6.2 billion on March 31, 2009, with all funds invested in overnight deposits.
  • Conventional Treasury market yields increased modestly during the first quarter of 2009, with longer-maturity Treasury securities posting the largest yield increases. Although Treasury yields remain relatively low amid continued flight-to-quality trades and in light of the weak U.S. economy, the modestly higher yields appeared to generally reflect concerns over the increasing supply of Treasury securities. During the second quarter of 2009, Treasury yields are expected to continue to trade within a range around current levels.
III. Budget
  • Approximately $274.7 million was spent in the Ongoing Operations component of the 2009 Corporate Operating Budget, which was $9.5 million (3 percent) below the budget for the three months ending March 31, 2009. The Salaries and Compensation expense category was $14.9 million below the year-to-date budget, but this was partially offset by $5.5 million and $3.8 million in overspending in the Outside Services – Personnel and Equipment expense categories, respectively.
  • Approximately $111.8 million was spent in the Receivership Funding component of the 2009 Corporate Operating Budget, which was $130.0 million (54 percent) below the budget for the three months ending March 31, 2009, despite the fact that spending during the first quarter was 59% greater than during the previous quarter. This anomaly was attributable to the fact that a large portion of the annual budget was spread evenly throughout the year rather than being allocated on the basis of a projected trend of increasing expenses in successive months as the cumulative number of failures grows during the year. A review of the distribution of the Receivership Funding budget by month is being conducted, and a more realistic distribution of the budget by month was completed in April.

Last Updated 06/17/2009

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