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

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Summary Trends and Results - Third Quarter 2010

Financial Results Comments
I. Financial   Statements
  • As of September 30, 2010, unearned assessment revenue was $33.4 billion, which is the amount remaining from the $45.7 billion in prepaid assessments collected on December 30, 2009.  Estimated assessments were prepaid by the majority of institutions for the period October 2009 through December 2012, and are recorded as a liability.  As a result, the DIF recognized prepaid assessments of $3.4 billion during the third quarter of 2010.  Additional assessment revenue of $248 million was recognized for third quarter insurance coverage from institutions that were exempt from the mandatory prepayments. Therefore, the total assessment revenue recognized during the third quarter of 2010 was $3.6 billion.
  • An institution’s quarterly risk-based deposit insurance assessment thereafter is offset by the amount prepaid until that amount is exhausted or until June 30, 2013, when any amount remaining would be returned to the institution.

 

II. Investments
  • The total liquidity (total market value plus accrued interest) of all DIF-related investment portfolios stood at $43.7 billion on September 30, 2010, down from $66.1 billion on December 31, 2009, led primarily by the decline in the DIF investment portfolio as discussed below.
  • The DIF investment portfolio’s amortized cost (book value) decreased by $21.8 billion during the first three quarters of 2010, totaling $37.4 billion on September 30, 2010.  The decrease was the result of having to fund 127 bank failures during the first three quarters of 2010.  It should be noted that 106 of these failures were resolved as cash-conserving 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 portfolio’s balance.  Moreover, during the first three quarters, the DIF received $8.6 billion in dividends and other payments from receiverships, which also helped to mitigate the DIF portfolio’s decline.  Nevertheless, the DIF portfolio’s balance is expected to continue to decline over the next few quarters.
  • At the end of the third quarter, the DIF investment portfolio’s yield was 0.47 percent, down 2 basis points from its December 31, 2009, yield of 0.49 percent.  A primary negative factor was $3.1 billion in relatively high yielding Treasury notes and bonds that matured during the period.  However, a generally offsetting positive factor was that overnight investment yields increased considerably, rising from 0.02 percent on December 31, 2009, to 0.12 percent on September 30, 2010—and the ultra-low yielding overnight investments comprised a considerably larger percentage of the DIF portfolio at the beginning of the year. 
  • Short-term Treasury bill yields declined modestly during the third quarter of 2010, while longer-maturity Treasury yields posted more dramatic declines.  Treasury yields remain at historically low levels, reflecting such factors as subdued inflation trends and stable inflation expectations, as well as the ultra-low federal funds target rate and continuing investor expectations that the rate will remain low for some time.  Moreover, the recent declines in longer-maturity Treasury yields reflect growing concerns over signs of a potential slowdown in both domestic and global economic growth.  Nevertheless, according to consensus expectations, Treasury yields are expected to increase, albeit modestly, during 2011.


III. Budget
  • Approximately $1.0 billion was spent in the Ongoing Operations component of the 2010 Corporate Operating Budget, which was $76.4 million (7 percent) below the budget for the nine months ending September 30, 2010.  Most of this variance reflected lower-than-budgeted spending in the Outside Services-Personnel expense category by $25.6 million, the Salaries and Compensation expense category by $21.5 million, and the Equipment expense category by $16.0 million.
  • Approximately $1.5 billion was spent in the Receivership Funding component of the 2010 Corporate Operating Budget, which was $87.5 million (5 percent) below the budget for the nine months ending September 30, 2010.  Actual expenses were significantly less than budget in Outside Services-Personnel expense category by $157.7 million, Salaries and Compensation expense category by $28.2 million, and Travel expense category by $13.4 million.  This was partially offset by overspending in Other Expenses by $75.2 million and Outside Services-Other by $40.0 million.





Last Updated 12/13/2010 dofbusinesscenter@fdic.gov

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