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Insurance Corporation

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

301 Moved Permanently

301 Moved Permanently


Summary Trends and Results - Third Quarter 2009

Financial Results Comments
I. Financial   Statements
  • During the third quarter of 2009, the DIF balance declined by $18.6 billion to negative $8.2 billion largely due to loss provisions for future failures. The FDIC projects the DIF will remain negative over the next several years because approximately $75.0 billion in failure costs are expected to be incurred from the end of the third quarter through the end of 2013.
  • To ensure the reserve ratio returns to 1.15 percent within eight years and to meet the DIF’s liquidity needs, the FDIC has approved a proposal to require all institutions to prepay, on December 31, 2009, their estimated risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. The FDIC estimates that the prepaid assessments will total approximately $45 billion. Although the DIF’s liquidity will be significantly enhanced from prepaid assessments inflows, they would not initially affect the fund balance. Upon receipt of these funds on December 30, 2009, the DIF would account for the amount collected as both an asset (cash) and an offsetting liability (deferred revenue). Thereafter, the DIF would recognize revenue for the regular risk-based assessments quarterly as it is earned.
II. Investments
  • The market value (including accrued interest) of the DIF’s cash and U.S. Treasury securities totaled $23.4 billion as of September 30, 2009 ($16.3 billion of primary reserve assets and $7.1 billion in systemic risk-related portfolios). DIF’s cash and U.S. Treasury securities are available to fund resolutions as needed. The DIF investment portfolio’s primary reserve (market value including accrued interest) decreased by $12.9 billion during the first nine months of 2009, and totaled $16.3 billion on September 30, 2009. The total market value of the other DIF-related investment portfolios – the Debt Guarantee Program, the Transaction Account Guarantee Program, and the Other Systemic Risk Reserves portfolio – increased by $4.7 billion during the first nine months of 2009, and totaled $7.1 billion on September 30, 2009.
  • The decline in the DIF’s primary reserve portfolio was largely the result of funding 95 failed institution resolutions during the first nine months of 2009. However, it should be noted that 56 of these bank and thrift failures were resolved as loss-share transactions (in which the acquirers purchased substantially all of the failed institutions’ assets and the FDIC and the acquirers entered into loss-share agreements) requiring little or no initial resolution funding, thus helping to mitigate the decline in the DIF’s portfolio value over this period. At quarter-end, the DIF investment portfolio yield was 2.3 percent, down 232 basis points from its December 31, 2008, yield of 4.59 percent. The yield decline stemmed from several factors; in addition to the sale and maturity of generally higher yielding securities during the first three quarters, on September 29, 2009, the DIF portfolio received $8.7 billion in regular and special assessment funds, and consequently the DIF portfolio ended the quarter with a very high overnight investment balance of $8.6 billion earning a low 0.07 percent yield.
  • Conventional Treasury market yields decreased during the third quarter of 2009, after increasing substantially during the second quarter of 2009. Treasury yields remain relatively low from a historical perspective, largely reflecting the still comparatively weak U.S. economy, the low federal funds target rate, and investors’ modest inflationary expectations. During the fourth quarter of 2009, Treasury yields are expected to continue to trade within a range around current levels, and to gradually rise over the next several quarters, allowing that the economic recovery continues to take hold and solidify.
III. Budget
  • Approximately $891.6 million was spent in the Ongoing Operations component of the 2009 Corporate Operating Budget, which was $10.6 million (1 percent) below the budget for the nine months ending September 30, 2009. Spending in the Outside Services – Personnel expense category was $9.1 million greater than the year-to-date budget, but this amount was more than offset by the net under spending in other expense categories. The Salaries and Compensation expense category was $8.9 million below the year-to-date budget. Nevertheless, a minor shortfall is projected for the full year in this budget component. To address this shortfall, the CFO recommended and the Board approved on October 20, 2009, a $16.0 million increase in budget authority for Ongoing Operations.
  • Approximately $646.0 million was spent in the Receivership Funding component of the 2009 Corporate Operating Budget, which was $81.5 million (11 percent) below the budget for the nine months ending September 30, 2009. The Salaries and Compensation and Travel expense categories were each $26.5 million below their year-to-date budgets. Together these two variances represented 65 percent of the total Receivership Funding variance. Approximately $337.8 million was spent during the third quarter, which represented a 72 percent increase over spending during the second quarter. If the trend of monthly spending increases continues during the fourth quarter, spending will substantially exceed the current $1 billion budget for this component before year-end.

Last Updated 12/10/2009

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