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Federal Deposit Insurance Corporation
550 17th Street, N.W., Washington, D.C. 20429-9990

Deputy to the Chairman and CFO

April 25, 2008
MEMORANDUM TO:

The Board of Directors

FROM:

Steven O. App
Deputy to the Chairman and
Chief Financial Officer
Bret D. Edwards
Director, Division of Finance

SUBJECT:

First Quarter 2008 CFO Report to the Board

The attached report highlights the Corporation's financial activities and results for the period ending
March 31, 2008.
Executive Summary
•

The Deposit Insurance Fund (DIF) balance grew by one percent ($430 million) to $52.843
billion during the first quarter of 2008, a decrease of 26 percent compared to a year ago.
Although two banks failed during the quarter, their resolution had a nominal effect on the DIF’s
comprehensive income.

•

On January 25, 2008, the Office of the Comptroller of the Currency closed Douglass National
Bank of Kansas City, Missouri, and named the FDIC as receiver. Liberty Bank and Trust of
New Orleans, Louisiana, assumed all of the deposits and purchased most of the assets of the
failed bank. DIF recorded a $50 million receivable from the receivership for the payments
made by DIF to cover obligations to insured depositors. In addition, an allowance for loss of
$6 million was recorded against the resolution receivable.
On March 7, 2008, the Commissioner of Missouri’s Division of Finance closed Hume Bank of
Hume, Missouri, and named the FDIC as receiver. Security Bank of Rich Hill, Missouri,
assumed the failed bank’s insured deposits and purchased approximately $3 million in assets.
The FDIC recorded a $14 million receivable from the receivership for the payments made by
DIF to cover obligations to insured depositors. In addition, DIF recorded an allowance for loss
of $3 million against the resolution receivable.

•

For the three months ending March 31, 2008, Corporate Operating and Investment Budget
related expenditures ran below budget by 12 percent and 16 percent, respectively. The variance
with respect to the Corporate Operating Budget expenditures was primarily the result of lower
spending for contractual services in both the Ongoing Operations and Receivership Funding
components of the budget during the quarter. Detailed quarterly reports are provided separately
to the Board by the Capital Investment Review Committee for those information technology
projects that are included in the Investment Budget.

The following is an assessment of each of the three major finance areas: financial statements,
investments, and budget.
Trends and Outlook
Comments
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.

Financial Results
I. Financial
Statements

•

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.

2

Financial Results
•

III. Budget

Trends and Outlook
Comments
At the end of the first quarter of 2008, the DIF portfolio’s available-forsale (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).

•

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.

I. Corporate Fund Financial Statement Results (See pages 9 - 10 for detailed data and charts.)
Deposit Insurance Fund (DIF)
•

For the three months ending March 31, 2008, DIF’s comprehensive income totaled $430
million compared to $580 million for the same period last year, a decrease of $150 million or
26 percent. This year-over-year decrease was primarily due to a $598 million increase in the
provision for insurance losses, which was offset in part by a: 1) $354 million increase in
assessment revenue; 2) $51 million increase in interest revenue from UST obligations; and 3)
$46 million increase in the unrealized gain on available-for-sale securities.

•

DIF recorded a $442 million receivable for estimated net assessments due from insured
institutions for first quarter 2008 insurance coverage. The receivable was the result of netting
approximately $563 million in credits against approximately $1.005 billion in gross assessment
revenue. During the month of March, DIF also collected $251 million in cash assessment
payments for fourth quarter 2007 insurance coverage, exceeding the estimated receivable by
approximately $6 million.

3

•

The provision for losses for the first quarter of 2008 was $525 million, consisting primarily of a
$458 million increase to the estimated losses for future failures and a $67 million upward
adjustment to the estimated losses for prior year failures (including $42 million for the NetBank
receivership and $16 million for the Miami Valley Bank receivership, both of which failed
during 2007).

FSLIC Resolution Fund (FRF)
•

For the first quarter of 2008, FRF reported a net loss of $55 million. This loss was primarily
related to Goodwill litigation expenses/losses that were partially offset by interest earned on
U.S. Treasury obligations.

•

In addition to the aforementioned Goodwill litigation expenses/losses, FRF paid Goodwill
judgments for two cases in the aggregate amount of $35.4 million that were accrued for in the
prior year.

II. DIF Investment Results (See pages 11 – 12 for detailed data and charts.)
•

The amortized cost (book value) of the DIF investment portfolio increased by $750 million or
by 1.5 percent—from $50.469 billion on December 31, 2007, to $51.219 billion on March 31,
2008. Moreover, reflecting the Treasury rally during the period, the DIF portfolio’s market
value increased by $2.113 billion or by 4.0 percent, from $52.378 billion on December 31,
2007, to $54.491 billion on March 31, 2008.

•

The DIF investment portfolio's total return for the first quarter of 2008 was 3.734 percent,
approximately 72 basis points less than its benchmark, the Merrill Lynch 1 - 10 Year U.S.
Treasury Index (Index), which had a total return of 4.455 percent during the same period.
Given the significant rise in Treasury security prices during the quarter, the DIF portfolio’s
large cash balance acted as a drag on total return performance.

•

During the first quarter of 2008, consistent with the approved quarterly Corporate investment
strategy, staff deferred purchases of Treasury securities in light of the comparatively low
Treasury yields available during the quarter. On March 31, 2008, the DIF portfolio’s overnight
investment balance was $8.079 billion, well above its $150 million target floor balance.

The Treasury Market
•

During the first quarter of 2008, conventional Treasury yields decreased substantially,
reflecting three cuts in federal funds target rate during the quarter totaling 200 basis points, and
reflecting market sentiment for additional cuts in the target rate during next couple of quarters.
In addition, Treasuries also rallied in response to “flight to quality” trades by investors seeking
the relative safety of Treasury securities. In the first quarter, yields on three-month and sixmonth T-Bills decreased by 192 basis points and 191 basis points, respectively. The two-year
note yield, which is also sensitive to actual as well as anticipated changes in the federal funds
rate, decreased by 147 basis points, again, reflecting the aforementioned cuts in the federal
funds target rate and reflecting expectations for additional rate cuts. Intermediate-maturity
Treasury yields also decreased dramatically over the course of the quarter. The yield on the
five-year Treasury note decreased by 100 basis points; the yield on the ten-year Treasury note
4

decreased by 61 basis points. The conventional Treasury yield curve steepened during the first
quarter of 2008; on March 31, 2008, the two-year to ten-year yield curve had a 183-basis point
positive spread (compared to positive 97-basis point spread at the beginning of the quarter).
Over the past five years, this spread has averaged 96 basis points.
•

During the first quarter of 2008, Treasury Inflation-Protected Securities’ (TIPS) real yields
decreased dramatically, reflecting lower actual and anticipated interest rates and concerns over
weak economic growth. The magnitude of the declines was in line with the yield declines of
comparable maturity conventional Treasury yields. The real yield of the DIF portfolio’s shortmaturity TIPS (with a maturity of little under one-year at the end of the quarter) decreased by
169 basis points during the quarter. The real yield on the portfolio’s longest-maturity TIPS
(with a maturity of just under four years) decreased by 100 basis points. The real yield on the
10-year TIPS maturing on January 15, 2017, decreased by 65 basis points.

Prospective Strategies
•

The current DIF investment strategy provides the flexibility to purchase a wide range of
different Treasury securities with varying maturities, depending on Treasury market conditions
and developments during the second quarter of 2008. In line with consensus expectations,
Treasury yields should continue to trade generally within their current range, with the potential
for a modest rise from quarter-end levels. During the second quarter of 2008, if appropriate,
staff may take advantage of rising yields by purchasing short- to intermediate-maturity
conventional Treasury securities and TIPS.

•

As part of the DIF portfolio’s approved first quarter 2008 investment strategy, an objective was
established to reach a $15 billion primary reserve target floor balance, which was achieved; at
quarter-end, the DIF portfolio’s primary reserve stood at $17.208 billion. The DIF portfolio’s
second quarter 2008 investment strategy maintains the strategic objective of increasing the
primary reserve, with newly purchased Treasury securities being designated AFS.

•

The current DIF investment strategy provides for purchasing AFS conventional Treasury
securities with maturities of six years or less, for purchasing AFS TIPS, and for holding excess
overnight investments, depending on Treasury market conditions and developments during the
second quarter of 2008. Any securities purchased during the quarter will be designated AFS.
As with recent quarterly investment strategies, conventional AFS securities will be limited to
maturities of six years or less, as a means to help control fund balance volatility. (See attached
Approved Investment Strategy.)

III. Budget Results (See pages 13 - 14 for detailed data.)
Approved Budget and Staffing Modifications
Three modifications were made to the 2008 Corporate Operating Budget and/or authorized
staffing, in accordance with the authority delegated by the Board of Directors in the 2008
Budget Resolution:
•

In January 2008, several divisions and offices reallocated budget authority among major
expense categories, largely to facilitate 2008 budget execution. These reallocations did not
5

change the total 2008 Corporate Operating Budget or the budgets of individual divisions or
offices as approved by the Board of Directors in December 2007. The largest reallocation
was made by the Division of Information Technology (DIT), which reallocated over $4
million from the Equipment category to other categories within its budget. This change
was prompted by a late 2007 budget reallocation that made funds available to purchase
equipment in 2007 rather than 2008. The total of these adjustments increased Outside
Services – Personnel by $4,142,239, Travel by $573,736, and Buildings by $212,000.
This was offset by decreasing Equipment by $4,073,852, Other Expenses by $770,766, and
Outside Services – Other by $83,357.
•

In February 2008, the Deputy to the Chairman and Chief Financial Officer (CFO)
approved a budget adjustment that affected all divisions and offices, except for the Office
of Inspector General, to implement changes to the pilot Professional Learning Accounts
(PLA) program approved by the Corporate University Governing Board in early 2008.
There was no net change in the total Board-approved budget, but funds were shifted
among divisions and offices and major expense categories. The Division of Supervision
and Consumer Protection and the Corporate University had the largest net budget increases
($215,377 and $104,011, respectively). The Division of Information Technology and the
Division of Administration had the largest net budget reductions ($166,465 and $90,103,
respectively).

•

In April 2008, the CFO approved an increase in authorized staffing for the Division of
Resolution and Receiverships (DRR) from 223 to 331. This increase included 39 new
permanent positions and 69 non-permanent positions (for up to two years, with possible
extensions based upon workload). In addition, the Chairman authorized DRR to increase
its planned temporary over-hiring from 19 to 30.1 The increase in permanent staff was
based on a reassessment of the appropriate size of the staffing platform needed to maintain
readiness and fulfill DRR’s ongoing mission in light of current conditions. The temporary
staffing increase was approved based on the potential increase in the number of institution
failures. This was a proactive measure to address possible workload that might not fully
materialize, but was deemed necessary to handle an increase in pre-failure workload and to
ensure that we are prepared to handle any failures that occur. DRR plans to reallocate
approximately $5.4 million from the Outside Services-Personnel category to the Salaries
and Compensation category in its Receivership Funding budget to cover the cost of the
non-permanent staff to be hired. Funds will be reallocated at the corporate level to DRR’s
Ongoing Operations budget to provide funding for the additional permanent staff to be
hired. No increase is expected to be necessary in the total 2008 Corporate Operating
Budget.

The 2008 Investment Budget spending projection for the 4C project (formerly the Asset
Servicing Technology Enhancement Project) was increased by $747,114 following the release
of $775,000 in contingency funds by the Capital Investment Review Committee (CIRC) in
March.

1

In December 2007, the Board of Directors, in conjunction with its approval of the 2008 Corporate Operating Budget,
authorized DRR to exceed its authorized staffing level on a temporary basis. This “temporary overhire” authority was
intended to facilitate orderly succession management within DRR in light of an unusually large number of projected
retirements doing the ensuing five years. Based on the Corporation’s retirement projections, DRR staffing is expected to
return to authorized levels by year-end 2010.

6

Spending Variances
Significant spending variances by major expense category and division/office are discussed
below. Significant spending variances for the three months ending March 31, 2008, are
defined as those that either (1) exceed the YTD budget by $3 million and represent more than
five percent for a major expense category or total division/office budget; or (2) are under the
YTD budget for a major expense category or division/office by an amount that exceeds $5
million and represents more than ten percent of the major expense category or total
division/office budget.
Significant Spending Variances by Major Expense Category
Ongoing Operations
There was only one major expense category that incurred a significant spending variance
during the first quarter in the Ongoing Operations component of the 2008 Corporate Operating
Budget:
•

Outside Services-Personnel expenditures were $10 million, or 24 percent, less than
budgeted. The variance was largely due to the fact that DIT budgeted funds in the first
quarter for some projects which will now begin later in the year and/or require less funding
than budgeted. The excess funds are expected to be reallocated to other projects that
require additional funds during the second and third quarters. The Chief Information
Officer Council (CIO) has approved the realignment of schedules and revised spending
plans for these projects. Those adjustments will be considered during the mid-year budget
review process. The variance was also due to lower net costs for the Student Residence
Center (because of increased proceeds derived from use of the facility from outside
parties) and lower-than-budgeted spending for contractual services in three areas: human
resources, nationwide administrative services, and personnel security.

Receivership Funding
The Receivership Funding component of the Corporate Operating Budget includes budgeted
funding for non-personnel expenses that are incurred in conjunction with institution failures
and the management and disposition of the assets and liabilities of the ensuing receiverships.
Receivership Funding also includes all salary and compensation costs of employees hired on a
non-permanent basis for actual or anticipated increases in receivership and resolution activities.
There was one major expense category in which a significant spending variance occurred
during the first quarter in the Receivership Funding component of the 2008 Corporate
Operating Budget:
•

Outside Services-Personnel expenditures were $9 million, or 59 percent, less than
budgeted, primarily due to the limited receivership and resolution activity that occurred
during the quarter.

7

Significant Spending Variances by Division/Office2
Three organizations had significant spending variances through the end of the first quarter:
• The Division of Information Technology (DIT) spent $10 million, or 17 percent, less than
budgeted. DIT spent $8.8 million less than budgeted in the ongoing operations component
of its budget, largely due to lower contractual spending for application development,
operations, and maintenance activities. Adjustments to application development project
schedules and budgets have been approved by the CIO Council and will be considered
during the mid-year budget review process. DIT also deferred equipment spending
initially budgeted in the first quarter to later in the year and spent $1.0 million less than
estimated during the first quarter for approved Investment Budget projects that are
monitored and reported to the Board separately by the CIRC.
• DRR spent $5 million, or 22 percent, less than budgeted. This variance was fully
attributable to under spending in the Receivership Funding component of its operating
budget due to the limited receivership and resolution activity that occurred during the
quarter.
•

The Legal Division spent $5 million, or 22 percent, less than budgeted. Approximately
$3.8 million of this variance was due to under spending in the Receivership Funding
component of the division’s operating budget due to the limited receivership and
resolution activity that occurred during the quarter. Spending in the Ongoing Operations
budget component was nearly $1.5 million below budget for the quarter because hiring did
not occur as quickly as anticipated and retirements in late 2007 exceeded projections.

Other Matters
The 2008 Budget Resolution approved by the Board on December 19, 2007, delegated to
the Chief Financial Officer the authority to “make necessary administrative adjustments to
the salaries and compensation expense category of the 2008 Corporate Operating Budget”
for certain factors not determined at the time of the budget adoption. In accordance with
that delegation of authority, we have completed an analysis of projected 2008 salary and
fringe benefit expenses, based on actual expenses through March 31, 2008. Locality pay,
annual pay adjustments and lump sum/bonus payments were effective in February and first
reflected in the March accounting records.
Our analysis indicates that 2008 salaries and fringe benefit costs were over-estimated by
approximately $1.6 million (0.2% of the Salaries and Compensation expense category) in
the formulation of the 2008 Corporate Operating Budget. This was largely offset, however,
by an increase in the 2008 pay adjustment for FDIC employees – on January 10, 2008,
Chairman Bair and the President of NTEU jointly announced an interim change to the Pay
For Performance (PFP) program that will cost approximately $1.5 million in 2008.
Accordingly, we have determined that no adjustment should be made to the Salaries and
Compensation category of the 2008 Corporate Operating Budget that was previously
approved by the Board of Directors.
2

Information on division/office variances reflects variances in both the Corporate Operating and Investment Budgets.

8

FDIC CFO REPORT TO THE BOARD – First Quarter 2008
Fund Financial Results

($ in Millions)

Balance Sheet
(unaudited)
Mar-08
Cash & cash equivalents
$
8,080
Investment in U.S. Treasury obligations, net
43,626
Assessments receivable, net
442
Interest receivable on investments and other assets, net
623
Receivables from resolutions, net
751
347
Property, buildings and other capitalized assets, net
Total Assets $ 53,869
127
Accounts payable and other liabilities
116
Postretirement benefit liability
Contingent Liabilities: future failures
583
Contingent Liabilities: litigation losses & other
200
1,026
Total Liabilities $
FYI: Unrealized gain on available-for-sale securities, net
486
19
FYI: Unrealized postretirement benefit gain
FUND BALANCE $ 52,843

Deposit Insurance Fund
(audited)
(unaudited)
Change
Mar-07
Dec-07
$
4,245 $
3,712
3,835 $
46,588
45,942
(2,962)
244
94
198
768
682
(145)
808
431
(57)
352
368
(5)
$ 53,005 $
51,229
864 $
152
119
(25)
116
130
0
124
35
459
200
200
0
$
592 $
484
434 $
359
315
127
19
2
0
$ 52,413 $
430 $
50,745

Year-Over-Year
Change
$
4,368
(2,316)
348
(59)
320
(21)
$
2,640
8
(14)
548
0
$
542
171
17
$
2,098

Approximately 46% of DIF's investments in U.S. Treasury obligations other than overnights will mature
by 2010. For the near-term, yields on newly purchased U.S. Treasury securities are expected to be
generally lower than the yields on maturing securities.
$12,000
2,050

$10,000
$ in Millions

$8,000
$6,000

9,143

$4,000
$2,000

1,482

1,706

1,271

1,158

1,034

5,021

4,525

3,409

3,214

2,775

830

921

641

438

263

83

2,790

1,490

2,100

2,395

1,950

1,550

2014

2015

2016

2017

2018

2019

$0
2008

2009

2010

2011

2012

2013

DIF Coupon Payments
DIF Portfolio Maturities (par value)

Income Statement

Assessments earned
Interest earned on investment securities
Other revenue
Total Revenue
Operating expenses (includes depreciation expense)
Provision for insurance losses
Other expenses
Total Expenses & Losses
Net Income
Unrealized gain/(loss) on available-for-sale securities, net
Unrealized postretirement benefit gain/(loss)
YTD Comprehensive Income

(unaudited)
Mar-08
$
448
618
1
$
1,067
238
525
1
$
764
$
303
127
0
$
430

Deposit Insurance Fund
(audited) (unaudited)
Year-OverMar-07
Year Change
Dec-07
$
643 $
94 $
354
2,540
567
51
(3)
14
4
$
3,197 $
665 $
402
993
239
(1)
95
(73)
598
3
0
1
$
1,091 $
166 $
598
(196)
$
2,106 $
499 $
125
81
46
17
0
0
$
2,248 $
580 $
(150)

Components of Provision for Insurance Losses
$600

525

458

$500
$400
$ in Milions

$300
$200
$100
$0

105
(28)

-$200

67

14 0

0

(4)

(5)

-$100

95

81

4
(52)
(159)

(154) (171)

(160)

(153)

-$300
-$400

The estimated losses for
anticipated failures as of March
31, 2008 reached its highest mark
in five years. Total losses from
anticipated failures by the end of
2008 and 2009 are expected to
be higher than the average over
the past ten years.

(353)
2004
Closed Banks

2005
Anticipated Failures

2006

2007

Other

Total Provision for Losses

3/2008

page 9

Fund Financial Results - continued

($ in Millions )

DIF Coverage Ratio
(Interest Revenue/Operating Expenses)
5
4
3

2.78
2.39

2.21

2.24

2.42

2.36

2.56

2002

2003

2004

2005

2006

2007

2.11

2.15

2008

2009

2
1
0
Year-end

2001

The coverage ratio in 2008 and
2009 is projected to decline due
to a modest decrease in
interest revenue and a nominal
increase in operating expenses.
The projected decline in interest
revenue is attributable to lower
Treasury market yields.

Projected

Deposit Insurance Fund

Statements of Cash Flows

(unaudited) (audited)
Mar-08
Dec-07
303 $
2,106
Net Income $
129
571
Amortization of U.S. Treasury obligations (unrestricted)
(80)
(314)
TIPS Inflation Adjustment
13
63
Depreciation on property and equipment
525
95
Provision for insurance losses
0
17
Unrealized gain on postretirement benefits
(94)
(668)
Net change in operating assets and liabilities
796 $
1,870
Net Cash Provided by Operating Activities $
3,039
7,626
Investments matured and sold
Investments purchased (includes purchase of property and
0
(8,205)
equipment)
(579)
3,039 $
Net Cash Provided by/(Used by) Investing Activities $
3,835
1,291
Net Increase (Decrease) in Cash and Cash Equivalents
4,245
2,954
Cash and Cash Equivalents at beginning of year
8,080 $
4,245
Cash and Cash Equivalents - Ending $

(unaudited)
Mar-07
$
499
136
(25)
13
(73)
0
37
$
587
$20.8
1,515

$

$

Year-OverYear Change
(196)
$
(7)
(55)
0
598
0
(131)
$
209
1,524

(1,344)
171 $
758
2,954
3,712 $

1,344
2,868
3,077
1,291
4,368

FSLIC Resolution Fund
(unaudited)
Mar-08
$
3,415
(123,825)
3,444
$
23
1
77
$
(55)

Cash and cash equivalents
Accumulated deficit, net
Resolution equity
Total revenue
Operating expenses
Goodwill/Guarini litigation expenses
Net (loss/income)

(audited)
(unaudited) Year-Over-Year
Change
Mar-07
Change
Dec-07
(202) $
3,675 $
(260)
$
3,617 $
(123,770)
(55)
(123,853)
28
3,648
(204)
3,708
(264)
$
188 $
64 $
(165) $
(41)
3
(2)
0
1
196
(119)
103
(26)
(119) $
(19) $
(36)
$
64 $

FRF Residual Activity
Goodwill Litigation & Tax Benefits
>19 Goodwill cases remain. Estimated completion by 2010.
>4 Tax benefit cases remain. 2 expected to terminate in 2008, 1 in
2012, 1 in 2013.

Restitution Orders, Professional Liability Claims,
& Other Legal Issues
>40 FRF professional liability matters remain.
>368 FRF criminal restitution orders and 3 FRF forfeiture matters
remain.
>15 "other" FRF legal matters remain.

Asset Disposition
>139 receivership assets with net book value of $3.5 million.
>43 corporate purchased assets with net book value of $28.7 million.
>395 off-book assets (criminal restitution & professional liability
claims) for a total of $774 million.
Program Responsibilities

>Affordable Housing - monitoring for 25+ years w/750+ properties.
>Environmental - Leaking Underground Storage Tank reimbursement
applications totaled $314 thousand. Approximately $177 thousand
received in 2007 with remainder to be received in 2008.
>Subsidiaries - 2 remain with termination anticipated in 2008.
>Receiverships - 11 remain with 10 due to terminate in 2008 and 1 in
2009.
>Partnerships - All Equity and Asset Management Disposition
Agreement partnerships will terminate in 2008.

page 10

Deposit Insurance Fund Portfolio Summary
(in millions)
Par Value
Amortized Cost
Market Value
Primary Reserve

1

Primary Reserve Target Floor
Primary Reserve % of Total Portfolio
Year-to-Date Total Return (Portfolio)
Year-to-Date Total Return (Benchmark)
Total Return Variance (in basis points)
Yield-to-Maturity

2

3

Weighted Average Maturity (in years)

3/31/08

12/31/07

Change

$48,441
$51,219
$54,491

$47,562
$50,469
$52,378

$879
$750
$2,113

$17,208

$14,317

$2,891

$15,000
31.2%

$15,000
26.9%

$0
4.3%

3.734%
4.455%
(72.1)

8.629%
8.861%
(23.2)

not applicable
not applicable
not applicable

4.45%

4.72%

(0.27%)

3.84

4.06

(0.22)

3.04
1.44
3.96

3.19
1.29
3.94

(0.15)
0.15
0.02

4

Effective Duration (in years)
Total Portfolio
Available-for-Sale Securities
Held-to-Maturity Securities
1

Primary Reserve is the total market value (including accrued interest) of overnight investments, available-for-sale securities,
and held-to-maturity securities maturing within three months.
2

The benchmark is the total return of the Merrill Lynch 1-10 Year U.S. Treasury Index.

3

The Yield-to-Maturity includes the potential yield of Treasury Inflation-Protected Securities (TIPS), which assumes an average
2.2% annual increase in the CPI over the remaining life of each TIPS.

4

For each TIPS, an estimated 80% "yield beta" factor is applied to its real yield duration to arrive at an estimated effective
duration.

National Liquidation Fund (NLF) Investment Portfolio Summary
(Dollar Values in Millions)
6

Book Value
Yield-to-Maturity
Weighted Average Maturity (in days)

12/31/07

Change

$425
2.47%
3

$393
4.22%
19

($32)
(1.75%)
(16)

Due to the short-term nature of the NLF, the portfolio's Book and Market Values are identical for reporting purposes.

U.S. Treasury Security Yield Curves
5.00%
4.00%

12/31/07

3.00%
3/31/08

Conventional

2.00%

12/3107

1.00%

TIPS
3/31/08

0.00%

03/31/08 Conventional

12/31/07 Conventional

10 Y
ear

7 Ye
ar

5 Ye
ar

4 Ye
ar

3 Ye
ar

2 Ye
ar

1 Ye
ar

-1.00%
3 Mo
nth
6 Mo
nth

6

3/31/08

03/31/08 TIPS

12/31/07 TIPS

page 11

Approved Investment Strategy
DEPOSIT INSURANCE FUND
Current Strategy as of 1st Quarter 2008
Maintain a $150 million target floor overnight investment balance.
Strategically invest all available funds in excess of the target overnight investment balance, which may include purchasing
conventional Treasury securities within the zero- to six-year maturity sector, purchasing Treasury Inflation-Protected
Securities (TIPS) within the two- to ten-year maturity sector, and/or purchasing callable Treasury securities with final
maturities not to exceed eight years, subject to the following limitations:
All newly purchased Treasury securities shall be designated available-for-sale (AFS).
Newly purchased AFS conventional Treasury securities should have maturities of six years or less.
Increase the portfolio's primary reserve balance, with a goal of reaching a $15 billion target floor balance
over the near term.

Strategy Changes for 2nd Quarter 2008
No specified portfolio primary reserve target floor balance.

NATIONAL LIQUIDATION FUND
Current Strategy as of 1st Quarter 2008
Maintain a target overnight investment balance between $20 million and $25 million.
Strategically invest the remaining funds in the zero- to 12-month maturity sector.

Strategy Changes for 2nd Quarter 2008
No changes in strategy .

page 12

Executive Summary of 2008 Budget and Expenditures
by Major Expense Category
Through March 31, 2008
(Dollars in Thousands)
Major Expense Category

YTD
Budget

YTD
Expenditures

% of
Budget Used

Variance

Corporate Operating Budget
Ongoing Operations
Salaries & Compensation
Outside Services - Personnel
Travel
Buildings
Equipment
Outside Services - Other
Other Expenses

$171,272
42,528
13,942
13,698
10,986
3,431
2,482

$163,358
32,309
13,639
13,577
7,605
2,623
2,007

95%
76%
98%
99%
69%
76%
81%

($7,914)
(10,219)
(303)
(121)
(3,381)
(808)
(475)

Total Ongoing Operations
Receivership Funding

$258,339

$235,118

91%

($23,221)

$854
15,336
1,407
575
56
136
380

$208
6,278
382
724
24
393
1,417

24%
41%
27%
126%
43%
289%
373%

($646)
(9,058)
(1,025)
149
(32)
257
1,037

$18,744

$9,426

50%

($9,318)

$277,083

$244,544

88%

($32,539)

Investment Budget 1

$6,214

$5,212

84%

($1,002)

Grand Total

$283,297

$249,756

88%

($33,541)

Salaries & Compensation
Outside Services - Personnel
Travel
Buildings
Equipment
Outside Services - Other
Other Expenses
Total Receivership Funding

Total Corporate Operating Budget

1) Budgets for investment projects are approved on a multi-year basis; the "Year-to-Date Budget" amount reflects the 2008
spending estimates for approved projects. Detailed quarterly reports on the status of those projects are provided separately
to the Board by the Capital Investment Review Committee.

page 13

Executive Summary of 2008 Budget and Expenditures
by Budget Component and Division/Office
Through March 31, 2008
(Dollars in Thousands)
YTD
Budget

Division/Office

YTD
Expenditures

% of
Budget Used

Variance

Corporate Operating Budget
Supervision & Consumer Protection
Information Technology
Administration
Resolutions & Receiverships
Legal
Insurance & Research
Finance
Inspector General
Corporate University
Executive Support 1
Executive Offices 2
Government Litigation
Total, Corporate Operating Budget
Investment Budget

$102,861
50,364
39,336
24,463
23,879
9,030
7,593
6,599
7,519
4,198
1,241
0
$277,083

$96,743
41,580
34,530
18,933
18,572
7,740
7,124
5,624
8,230
4,182
1,247
39
$244,544

94%
83%
88%
77%
78%
86%
94%
85%
109%
100%
100%
N/A
88%

($6,118)
(8,784)
(4,806)
(5,530)
(5,307)
(1,290)
(469)
(975)
711
(16)
6
39
($32,539)

$6,073
0
141
$6,214

$5,102
67
43
$5,212

84%
N/A
30%
84%

($971)
67
(98)
($1,002)

$102,861
56,437
39,336
24,463
23,879
9,171
7,593
6,599
7,519
4,198
1,241
0
$283,297

$96,743
46,682
34,530
19,000
18,572
7,783
7,124
5,624
8,230
4,182
1,247
39
$249,756

94%
83%
88%
78%
78%
85%
94%
85%
109%
100%
100%
N/A
88%

($6,118)
(9,755)
(4,806)
(5,463)
(5,307)
(1,388)
(469)
(975)
711
(16)
6
39
($33,541)

3

Information Technology
Resolutions & Receiverships
Insurance & Research
Total, Investment Budget 3
Combined Division/Office Budgets
Supervision & Consumer Protection
Information Technology
Administration
Resolutions & Receiverships
Legal
Insurance & Research
Finance
Inspector General
Corporate University
Executive Support 1
Executive Offices 2
Government Litigation
Grand Total

1) Executive Support includes the Offices of Diversity and Economic Opportunity, Public Affairs, Ombudsman, Legislative
Affairs, Enterprise Risk Management, and International Affairs.
2) Executive Offices include the offices of the Chairman, Vice Chairman, Independent Director, Deputy to the Chairman
and Chief Operating Officer, and Deputy to the Chairman and Chief Financial Officer.
3) Budgets for investment projects are approved on a multi-year basis; the "Year-to-Date Budget" amount reflects the 2008
spending estimates for approved projects. Detailed quarterly reports on the status of those projects are provided separately
to the Board by the Capital Investment Review Committee.

page 14