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

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Summary Trends and Results - Fourth Quarter 2010

Financial Results Comments
I. Financial   Statements
  • While the number of resolutions per year has increased since 2008, the start of the current crisis, through 2010, the average assets at inception and the average estimated loss per resolution has declined.  Only 25 institutions failed in 2008, however, the average total assets per institution were $2.6 billion (excluding Washington Mutual Bank, which was resolved at no cost to the DIF), compared with $594 million per institution in 2010 for the 157 failures.  In addition to the decline in the size of the failed institutions, as measured by average total assets, the loss estimates on those assets also declined during that period.
II. Investments
  • The total liquidity (total market value plus accrued interest) of all DIF-related investment portfolios stood at $46.2 billion on December 31, 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 $19.8 billion during 2010, and totaled $39.5 billion on December 31, 2010.  The decrease was primarily the result of having to fund 157 bank failures during 2010, although it should be noted that 130 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 lower initial resolution funding, thus helping to mitigate the decline in the DIF portfolio’s balance.  Moreover, during 2010, the DIF received $13.6 billion in dividends and other payments from its receiverships.  These payments 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.
  • On December 31, 2010, the DIF investment portfolio's yield was 0.40 percent, down 9 basis points from its December 31, 2009, yield of 0.49 percent.  A primary negative factor was that $3.1 billion in relatively high yielding Treasury notes and bonds matured during the period.  However, a somewhat offsetting positive factor was that overnight investment yields increased modestly, rising from 0.02 percent on December 31, 2009, to 0.05 percent on December 31, 2010—and the ultra-low yielding overnight investments comprised a considerably larger percentage of the DIF portfolio at the beginning of the year.
  • During the fourth quarter of 2010, short-maturity Treasury bill (T-Bill) yields were little changed while longer-maturity Treasury yields posted dramatic increases.  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.  However, the recent increases in longer-maturity Treasury yields appeared to reflect factors such as investor expectations for a strengthening economy and concerns over growing debt levels.  According to consensus expectations, Treasury yields are expected to increase, albeit modestly, during 2011.


III. Budget
  • Approximately $1.4 billion was spent in the Ongoing Operations component of the 2010 Corporate Operating Budget, which was $65.3 million (4 percent) below the annual budget for the year ending December 31, 2010.  Actual expenses were below annual budgets in the Outside Services – Personnel expense category (by $32.5 million), and the Salaries & Compensation expense category (by $29.9 million).
  • Approximately $2.0 billion was spent in the Receivership Funding component of the 2010 Corporate Operating Budget, which was $502.7 million (20 percent) below the annual budget for the year.  Actual expenses were significantly less than budget in the Outside Services – Personnel (by $427.9 million), Salaries & Compensation (by $68.8 million), and Buildings (by $47.3 million) expense categories, but were partially offset by overspending in the Outside Services – Other (by $40.2 million) and Other Expenses (by $30.0 million) expense categories.





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

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