July 2005
Audit Report 05-025

Footnote 1:   Positively Sloped Yield Curve: A situation in which long-term debt instruments have higher yields than short-term debt instruments. This is the usual condition, and happens because investors demand a higher return for taking on the additional risk of the longer-term investment.

Footnote 2:   Maturity/Duration Bucket: A time slice of the yield curve defined on an earlier page. For example, an analyst may choose to divide a 12-year yield curve into eight buckets. He defines the beginning date and end date of each bucket. Together, the eight buckets must match the entire yield curve. This division of the yield curve facilitates hedging decisions as well as estimates of the risk to the portfolio from potential changes in the shape of the yield curve.

Footnote 3:   “The Sharpe Ratio”; Sharpe, William F.; The Journal of Portfolio Management, Fall 1994.

Footnote 4:   Market Signaling: To convey information to the market through a firm’s or entity’s actions.

Footnote 5:   Laddered Portfolio: An investment portfolio constructed to have comparable cash flows in each maturity “bucket” in order to minimize the risk of a change in the shape of the yield curve.

Footnote 6:   Adjusted Book Value: The book value on an entity’s balance sheet after assets and liabilities are adjusted to market value.

Footnote 7:   Fair Value: The price that an interested but not desperate buyer would be willing to pay and an interested but not desperate seller would be willing to accept on the open market assuming a reasonable period of time for an agreement to arise.

Footnote 8:   The reporting associated with assets classified as AFS or HTM is reviewed as part of the FDIC’s annual financial statement audits performed by the Government Accountability Office.