|
2008 Annual Report
IV. Financial Statements and Notes
Deposit Insurance Fund (DIF) – Cont.
3. Investment in
U.S. Treasury Obligations, Net
As of December 31, 2008 and 2007, investments in U.S. Treasury obligations, net, were $27.9 billion and $46.6 billion, respectively. As of December 31, 2008, the DIF held $2.7 billion of Treasury inflation-protected securities (TIPS). These securities are indexed to increases or decreases in the Consumer Price Index for All Urban Consumers (CPI-U). Additionally, the fair value of callable U.S. Treasury bonds held at December 31, 2008 is $3.0 billion. Callable U.S. Treasury bonds may be called five years prior to the respective bonds’ stated maturity on their semi-annual coupon payment dates upon 120 days notice.
In June 2008, the Corporation transferred all of DIF’s held-to-maturity investments to the available-for-sale category. Management determined that it no longer had the positive intent and ability to hold its investment in securities classified as held-to-maturity for an indefinite period of time because of significant actual and potential resolution-related outlays for DIF-insured institutions. The securities transferred had a total amortized cost of $34.5 billion, fair value of $36.1 billion, and unrealized gains of $1.6 billion, which were recorded as other comprehensive income at the time of transfer.
For the year ended December 31, 2008, available-for-sale securities were sold for total proceeds of $14.1 billion. The gross realized gains on these sales totaled $775 million. To determine gross realized gains, the cost of securities sold is based on specific identification. Net unrealized holding gains on available-for-sale securities of $1.9 billion are included in other comprehensive income.
U.S. Treasury Obligations at December 31, 2008
Dollars in Thousands |
Maturity(a) |
Yield at Purchase(b) |
Face Value |
Net Carrying Amount |
Unrealized Holding Gains |
Unrealized Holding Losses(c) |
Fair Value |
Available-for-Sale |
U.S. Treasury notes and bonds |
Within 1 year |
4.25% |
$6,192,000 |
$6,350,921 |
$130,365 |
$0 |
$6,481,286 |
After 1 year through 5 years |
4.72% |
9,503,000 |
9,451,649 |
1,030,931 |
0 |
10,482,580 |
After 5 years through 10 years |
4.79% |
6,130,000 |
7,090,289 |
1,142,753 |
0 |
8,233,042 |
U.S. Treasury inflation-protected securities |
Within 1 year |
3.82% |
726,550 |
726,561 |
0 |
(5,627) |
720,934 |
After 1 year through 5 years |
3.14% |
1,973,057 |
1,989,608 |
0 |
(48,370) |
1,941,238 |
Total Investment in U.S. Treasury Obligations, Net |
Total |
|
$24,524,607 |
$25,609,028 |
$2,304,049 |
$(53,997) |
$27,859,080 |
(a) For purposes of this table, all callable securities are assumed to mature on their first call dates. Their yields at purchase are reported as their yield to first call date.
(b) For TIPS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIPS include a long-term annual inflation assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.2 percent, based on figures issued by the Congressional Budget Office and Blue Chip Economic Indicators in early 2008.
(c) The unrealized losses on the U.S. Treasury inflation-protected securities (TIPS) is attributable to the two month delay in adjusting TIPS’ principal for changes in the November and December Consumer Price Index for all Urban Consumers. As the losses occurred over a period less than a year and the December 31, 2008 unrealized losses converted to unrealized gains by February 28, 2009, the FDIC does not consider these securities to be other than temporarily impaired at December 31, 2008. |
U.S. Treasury Obligations at December 31, 2007
Dollars in Thousands |
Maturity(a) |
Yield at Purchase(b) |
Face Value |
Net Carrying Amount |
Unrealized Holding Gains |
Unrealized Holding Losses(c) |
Market Value |
Held-to-Maturity |
U.S. Treasury notes and bonds |
Within 1 year |
4.49% |
$5,600,000 |
$5,651,699 |
$30,313 |
$(469) |
$5,681,543 |
After 1 year through 5 years |
4.50% |
12,920,000 |
13,310,856 |
416,031 |
0 |
13,726,887 |
After 5 years through 10 years |
4.81% |
11,550,000 |
12,856,888 |
764,723 |
0 |
13,621,611 |
After 10 years |
5.02% |
3,500,000 |
4,626,945 |
286,889 |
0 |
4,913,834 |
U.S. Treasury inflation-protected securities |
Within 1 year |
3.86% |
258,638 |
258,620 |
349 |
0 |
258,969 |
After 1 year through 5 years |
3.16% |
1,288,950 |
1,310,166 |
52,927 |
0 |
1,363,093 |
Total |
|
$35,117,588 |
$38,015,174 |
$1,551,232 |
$(469) |
$39,565,937 |
Available-for-Sale |
U.S. Treasury notes and bonds |
After 1 year through 5 years |
4.79% |
$500,000 |
$498,260 |
$10,100 |
$ 0 |
$508,360 |
U.S. Treasury inflation-protected securities |
Within 1 year |
3.92% |
1,700,545 |
1,700,397 |
2,325 |
0 |
1,702,722 |
After 1 year through 5 years |
3.75% |
6,004,277 |
6,015,235 |
346,483 |
0 |
6,361,718 |
Total |
|
$8,204,822 |
$8,213,892 |
$358,908 |
$ 0 |
$8,572,800 |
Total Investment in U.S. Treasury Obligations, Net |
Total |
|
$43,322,410 |
$46,229,066 |
$1,910,140 |
$(469) |
$48,138,737 |
(a) For purposes of this table, all callable securities are assumed to mature on their first call dates. Their yields at purchase are reported as their yield to first call date.
(b) For TIPS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIPS include a long-term annual inflation assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.2 percent, based on figures issued by the Congressional Budget Office and Blue Chip Economic Indicators in early 2007.
(c) All unrealized losses occurred as a result of changes in market interest rates. FDIC had the ability and intent to hold the related securities until maturity. As a result, all unrealized losses are considered temporary. However, all of the $469 thousand reported as total unrealized losses is recognized as unrealized losses occuring over a period of 12 months or longer with a market value of $1.1 billion applied to the affected securities. |
As of December 31, 2008 and 2007, the unamortized premium, net of the unamortized discount, was $1.1 billion and $2.9 billion, respectively.
|