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

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Chief Financial Officer's (CFO) Report to the Board Home
Executive Summary
   •  Summary Trends and Results
I. Corporate Fund Financial Results

   •  DIF Balance Sheet
   •  DIF Income Statement
   •  DIF Statements of Cash Flows
   •  FRF Statements of Cash Flows
II. Investments Results & Prospective Strategies

   •  Deposit Insurance Fund Portfolio Summary
   •  Approved Investment Strategy
III. Budget Results

   •  Budget & Expenditures by Major Expense Categories
   •  Budget & Expenditures by Budget Component, Division & Office
Printable Version

Summary Trends and Results - First Quarter 2008

Financial Results Comments
I. Financial Statements
  • The DIF fund balance is projected to increase by $2.8 billion, from $52.4 billion at year-end 2007 to $55.2 billion by year-end 2008. Assuming assessable and insured deposit growth of four percent, the reserve ratio is projected to reach the 1.25 percent designated reserve ratio early in 2009. The main component of the fund balance increase is net assessment revenue, which reaches $2.7 billion in 2008 as the available assessment credits continue to be depleted. Also contributing to the increase is investment income exceeding operating expenses by $1.2 billion in 2008. Provision for insurance losses (including losses from failures) reduces the increase in comprehensive income and is projected to rise in 2008 to $1.1 billion.


II. Investments
  • The DIF investment portfolio’s amortized cost (book value) increased by 1.49 percent during the first quarter of 2008, and totaled $51.219 billion on March 31, 2008. At quarter end, the DIF’s portfolio yield was 4.45 percent, down about 27 basis points from its December 31, 2007, yield of 4.72 percent. A large factor behind this decline was that securities totaling $3.040 billion with a high weighted average yield of 5.77 percent matured during the first quarter. During the quarter, staff deferred purchases of conventional Treasury securities in light of depressed Treasury yields. All available funds were invested in overnight investments. At quarter end, overnight investments totaled $8.079 billion, or about 14.8 percent of the total portfolio as measured by market value. During the quarter, overnight investments averaged about 2.65 percent on a bond equivalent basis. However, on March 31, 2008, overnight investments had a bond equivalent yield of 1.45 percent. Thus, the DIF portfolio’s average yield at quarter-end reflected a large amount of previously high yielding Treasury securities now being invested in lower yielding overnight investments.
  • Treasury market yields declined dramatically during the first quarter of 2008, reflecting concerns over the U.S. economy possibly heading into recession and reflecting the substantial cuts in the federal funds target rate; the rate was cut three times during the quarter, for a total decline of 200 basis points, from 4.25 percent to 2.25 percent. Treasuries also rallied in response to “flight to quality” trades by investors seeking the safety of Treasuries in the face of financial market turmoil. During the second quarter of 2008, Treasuries are expected to trade generally within the range exhibited during the last few weeks of the first quarter, as many investors are expecting further reductions in the federal funds target rate and are concerned the U.S. economy may already be in a recession.
  • At the end of the first quarter of 2008, the DIF portfolio’s available-for-sale (AFS) securities had unrealized gains of $485.9 million. Market consensus expectations are for Treasury yields to gradually rise over the second half of 2008, which would likely reduce these unrealized gains. However, regardless of changes in yields, existing net unrealized gains will be reduced due to the passage of time (that is, any unrealized gains or losses vanish as AFS securities approach their maturity dates).
III. Budget
  • Approximately $235 million was spent in the Ongoing Operations component of the 2008 Corporate Operating Budget, which was $23 million (9 percent) below the budget for the three months ending March 31, 2008. The Outside Services - Personnel expense category was approximately $10 million below its year-to-date budget, and the Salaries and Compensation category was almost $8 million below its year-to-date budget. Together, these two categories represented 78 percent of the total Ongoing Operations variance.
  • Approximately $9.4 million was spent in the Receivership Funding component of the 2008 Corporate Operating Budget, which was $9.3 million (50 percent) below the budget for the three months ending March 31, 2008. The Outside Services - Personnel expense category was $9.1 million below its year-to-date budget, and represented 97 percent of the total Receivership Funding variance. The variance was primarily due to the limited receivership and resolution activity during the quarter.


Last Updated 05/14/2008 dofbusinesscenter@fdic.gov