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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.
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| 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.
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| 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.
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