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

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Summary Trends and Results - Fourth Quarter 2009

Financial Results Comments
I. Financial   Statements
  • Although the DIF’s fund balance declined by $38.1 billion during 2009, the DIF’s liquidity was significantly enhanced by prepaid assessments inflows–cash and marketable securities stood at $66.0 billion at year-end. Hence, the DIF is well positioned to fund resolution activity in 2010 and beyond.
  • As of December 31, 2009, the DIF’s exposure, as a result of resolving many failed institutions utilizing whole bank with loss-share transactions, has increased substantially. DIF receiverships’ remaining loss-share payment exposure is approximately $21.3 billion over the term of the loss-share agreements. The estimated liability for loss sharing is accounted for by the individual receiverships and is considered in the determination of the DIF’s allowance for loss against the corporate receivable from the resolution.
  • During 2009, the FDIC in its corporate capacity offered guarantees on loans issued by newly-formed limited liability companies (LLCs) that were created to dispose of certain residential mortgage loans, construction loans, and other assets of two receiverships. As of December 31, 2009, the DIF is not expected to take any losses on these guarantees.
II. Investments
  • The DIF investment portfolio’s amortized cost (book value) increased by $32.7 billion during 2009, and totaled $59.3 billion on December 31, 2009. To a large extent, the increase was the result of the portfolio receiving almost $45.7 billion in prepaid deposit insurance assessments and $3.2 billion in regular deposit insurance assessments at the end of December 2009. Prior to the receipt of those funds, the DIF investment portfolio had declined significantly over the course of the year due to funding 140 failed institution resolutions during 2009. However, it should be noted that 90 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 DIF portfolio’s decline. At year-end, the DIF investment portfolio’s yield was 0.49 percent, down 410 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 much of the year, the DIF investment portfolio received a total of $48.9 billion in insurance assessments at year-end, and all of those new funds were placed in overnight investments. Consequently, the DIF portfolio ended the year with a very high $53.9 billion overnight investment balance earning an ultra-low 0.02 percent yield.
  • Most conventional Treasury market yields increased during the fourth quarter of 2009—particularly longer-maturity conventional Treasury yields—after having declined during the third quarter of 2009. The yield increases probably reflected investors’ growing confidence of an economic turnaround; moreover, longer-maturity Treasury yields appear to be subject to upward pressure as increasing amounts of new Treasuries are issued to help finance Federal budget deficits. Nevertheless, Treasury yields remain relatively low from a historical perspective, largely reflecting the still comparatively weak U.S. economy, the ultra-low federal funds target rate, and investors’ modest inflationary expectations. During the first quarter of 2010, 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 $1.2 billion was spent in the Ongoing Operations component of the 2009 Corporate Operating Budget, which was $24.3 million (2 percent) below the budget for the year. Spending exceeded budgeted levels by a combined $7.7 million in the Travel and Equipment expense categories, but this was offset by a combined $32.0 million in under spending in all of the remaining expense categories.
  • Approximately $1.1 billion was spent in the Receivership Funding component of the 2009 Corporate Operating Budget, which was $202.5 million (16 percent) below the budget for the year. Most of the under spending ($101.5 million) occurred in the Outside Services – Personnel expense category.
  • Authorized staffing increased by 12 percent, from 6,269 at the beginning of the year to 7,010 at the end of 2009. Similar to last year, this increase was attributable primarily to increased resolution and receivership management activity and the elevated examination workload that resulted from a rise in the number of troubled institutions. In December, the Board approved a further increase in authorized staffing for 2010 to 8,653. Approximately 93 percent of the additional positions for 2009 and 2010 are non-permanent. On board staff increased from 4,988 at the beginning of the year to 6,557 at the end of 2009, primarily due to the hiring in the Division of Resolutions and Receiverships, Division of Supervision and Consumer Protection, and the Legal Division.

Last Updated 04/13/2010

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