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FDIC¡

Federal Deposit Insurance Corporation
Deputy to the Chairman and CFO

550 17th Street, NW" Washington, D,C, 20429-9990

May 22, 2009

MEMORANDUM TO:

The Board of Directors

FROM:

Steven O. APP.A~..~? arr
Deputy to the Chairman and
Chief Financial Officer

BretD. Edwards~ Ë~
Director, Division of Finance

SUBJECT:

First Quarter 2009 CFO Report to the Board

The attached report highlights the Corporation's financial activities and results for the period ending
March 31, 2009.
Executive Summary
. The Deposit Insurance Fund (DIF) balance decreased by 25 percent ($4.3 billion) to $13.0

billion during the first quarter of 2009. The first quarter 2009 decrease was primarily due to
$6.6 billion in the provision for insurance losses and a $331.3 million decrease in the
unrealized gain on available-for-sale securities, offset by $2.6 billion in assessment revenue,
$136.3 million in the realized gain on sale of securities, and $212.1 million in interest earned
on investment securities.
. During the first quarter of2009, the FDIC was named receiver for 21 failed institutions. The
combined assets at inception for these institutions totaled approximately $9.5 billion with an

estimated loss totaling $2.2 billion. The corporate cash outlay during the first quarter for these
failures was $3.6 billion. Eight receiverships entered into loss share agreements with the
acquiring institutions and are expected to pay approximately $687.5 million over the length of
the agreements.
. For the three months ending March 31, 2009, Corporate Operating and Investment Budget

related expenditures ran below budget by 27 percent ($139.5 million) and 29 percent ($548.0
thousand), respectively. The variance with respect to the Corporate Operating Budget was
primarily in the Receivership Funding budget component, where spending in all expense
categories was well below budget for the first quarter. This budget surplus is expected to be
reduced as expenses increase in future quarters in connection with additional resolution
activity.

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

Financial Results
I. Financial
Statements

II. Investments

Trends and Outlook
Comments
•

During the past two quarters, the FDIC resolved ten institutions using a
Whole Bank Purchase and Assumption resolution transaction with an
accompanying Loss Share Agreement on the assets purchased by the
acquirer. Under the terms of the agreement, losses on the covered
assets will be shared between the acquirer and the FDIC in its
Receivership capacity. As of March 31, 2009, DIF receiverships are
estimated to pay approximately $2.8 billion over the length of these
loss-share agreements (typically over 5 to 10 years) on approximately
$17.9 billion in total covered assets. The estimated liability for loss
sharing is accounted for by the receiver and is considered in the
determination of the DIF’s allowance for loss against the corporate
receivable from the resolution. As loss-share claims are asserted and
proven, DIF receiverships will satisfy these loss-share payments using
available liquidation funds and/or amounts due from the DIF for
funding the deposits assumed by the acquirer. Through the end of the
first quarter, the DIF receiverships have not made any loss-share
payments.

•

The Deposit Insurance Fund (DIF) investment portfolio’s amortized
cost (book value) decreased by $2.1 billion during the first quarter of
2009, and totaled $24.5 billion on March 31, 2009. The decline was
largely the result of funding 21 failed institution resolutions during the
first quarter. However, it should be noted that eight of this quarter’s
bank and thrift failures were resolved as “whole bank” purchase and
assumption transactions (in which the acquirers purchased all or
substantially all of the failed institutions’ assets and the FDIC and the
acquirers entered into loss-share transactions) requiring little or no
initial resolution funding, thus helping to mitigate this quarter’s decline
in the portfolio’s value. At quarter end, the DIF investment portfolio
yield was 4.43 percent, down 16 basis points from its December 31,
2008, yield of 4.59 percent. The yield decline stemmed from several
factors, notably the sale and maturity of generally higher yielding
securities, as well as the DIF portfolio ending the quarter with a
comparatively high overnight investment balance of $1.5 billion earning
an ultra-low 0.04 percent yield. The high quarter-end overnight
investment balance was largely attributable to the receipt of almost $1.1
billion in assessments on March 30, 2009.

2

Financial Results
II. Investments

III. Budget

Trends and Outlook
Comments
•

The recently established Debt Guarantee Program investment portfolio
[from the guarantee fees under the Temporary Liquidity Guarantee
Program (TLGP)] increased from $2.4 billion on December 31, 2008, to
$6.2 billion on March 31, 2009, with all funds invested in overnight
deposits.

•

Conventional Treasury market yields increased modestly during the first
quarter of 2009, with longer-maturity Treasury securities posting the
largest yield increases. Although Treasury yields remain relatively low
amid continued flight-to-quality trades and in light of the weak U.S.
economy, the modestly higher yields appeared to generally reflect
concerns over the increasing supply of Treasury securities. During the
second quarter of 2009, Treasury yields are expected to continue to
trade within a range around current levels.

•

Approximately $274.7 million was spent in the Ongoing Operations
component of the 2009 Corporate Operating Budget, which was $9.5
million (3 percent) below the budget for the three months ending March
31, 2009. The Salaries and Compensation expense category was $14.9
million below the year-to-date budget, but this was partially offset by
$5.5 million and $3.8 million in overspending in the Outside Services –
Personnel and Equipment expense categories, respectively.

•

Approximately $111.8 million was spent in the Receivership Funding
component of the 2009 Corporate Operating Budget, which was $130.0
million (54 percent) below the budget for the three months ending
March 31, 2009, despite the fact that spending during the first quarter
was 59% greater than during the previous quarter. This anomaly was
attributable to the fact that a large portion of the annual budget was
spread evenly throughout the year rather than being allocated on the
basis of a projected trend of increasing expenses in successive months
as the cumulative number of failures grows during the year. A review
of the distribution of the Receivership Funding budget by month is
being conducted, and a more realistic distribution of the budget by
month was completed in April.

I. Corporate Fund Financial Results (See pages 10 - 11 for detailed data and charts.)
Deposit Insurance Fund (DIF)
•

For the three months ending March 31, 2009, the DIF’s comprehensive loss totaled $4.3 billion
compared to comprehensive income of $430.1 million for the same period last year. The yearover-year decrease of $4.7 billion was mostly due to a $6.1 billion increase in the provision for
3

insurance losses, a $458.3 million decrease in the unrealized gain on available-for-sale
securities, and a $406.1 million decrease in interest earned on U.S. Treasury obligations;
partially offset by a $2.2 billion increase in assessment revenue and a $136.3 million increase
in realized gains from the sale of U.S. Treasury obligations.
•

In February, the FDIC received $3.0 billion in preferred stock from Citigroup in return for
providing a loss guarantee (up to $10 billion–after initial losses of $44.5 billion are taken by
Citigroup and U.S. Treasury) on an asset pool of $300.8 billion of loans and securities backed
by residential and commercial real estate. The preferred stock is reported in the “Preferred
stock – systemic risk” line item on DIF’s balance sheet. The FDIC also received the first
quarterly dividend of $20.2 million from the preferred stock in February.

•

For the first three months of 2009, the FDIC collected $3.8 billion in fees under the Debt
Guarantee Program (DGP) and $90.0 million in fees under the Transaction Account Guarantee
Program (TAGP). For the 21 failures that occurred during the first quarter of 2009, the FDIC
paid $323.3 million in claims under the TAGP and recorded estimated losses of $66.5 million
against this receivable.

FSLIC Resolution Fund (FRF)
•

FRF paid Goodwill judgments for three cases in the aggregate amount of $142.3 million that
were accrued in 2008.

II. Investments
Investment Results (See pages 12 – 13 for detailed data and charts.)
•

The amortized cost (book value) of the DIF investment portfolio decreased by $2.1 billion (7.7
percent) during the first quarter of 2009, from $26.6 billion on December 31, 2008, to $24.5
billion on March 31, 2009. Similarly, the DIF portfolio’s market value dropped by $2.4 billion
(8.3 percent), from $28.8 billion on December 31, 2008 to $26.4 billion on March 31, 2009.
Again, the declines were primarily the result of funding failed institution resolutions during the
quarter.

•

The DIF investment portfolio's total return for the first quarter of 2009 was 0.140 percent,
approximately 46 basis points higher than its benchmark, the Merrill Lynch 1 – 10 Year U.S.
Treasury Index (Index), which had a total return of -0.320 percent during the same period. The
DIF portfolio’s Treasury Inflation-Protected Securities (TIPS) considerably outperformed the
Index’s conventional Treasury securities; short-maturity TIPS market real yields declined
during the quarter while conventional Treasury yields increased. Moreover, the DIF portfolio’s
cash balances held during the quarter helped contribute to the positive relative return. Finally,
because the DIF portfolio’s conventional Treasury securities have a lower average duration
than the securities held in the Index, their price declines were less than those of the Index.

•

During the first quarter of 2009, to help fund resolution-related cash outlays, staff sold a total of
eight AFS conventional Treasury securities on four occasions; the securities had a total book
value of $1.2 billion, a total market value of $1.3 billion, a weighted average maturity (WAM)
of 7.90 years, a weighted average modified duration of 6.09 years, and a weighted average
4

yield-at-cost of 4.90%. These security sales resulted in a realized gain of $136.3 million. On
March 31, 2009, the DIF portfolio’s overnight investment balance was $1.5 billion (about 5.8
percent of the portfolio by market value), largely reflecting the receipt of almost $1.1 billion in
assessments on March 30, 2009.
Other Corporate Investment Portfolios
•

The book value of the recently established Debt Guarantee Program investment portfolio
increased from $2.4 billion on December 31, 2008, to $6.2 billion on March 31, 2009. The
funds in this portfolio are from the guarantee fees related to the Debt Guarantee Program under
the TLGP. Consistent with the approved quarterly investment strategy, all Debt Guarantee
Program portfolio funds were invested in overnight investments during the quarter.

•

On February 16, 2009, the FDIC collected $20.2 million in dividends on the Fixed Rate
Cumulative Perpetual Preferred Stock, Series G issued by Citigroup Inc. (Citigroup Stock).
Subsequently, the DIF should receive dividends of $60.5 million per quarter from the Citigroup
Stock. These funds are segregated and invested separately from DIF’s other cash and
investments in the newly established Other Systemic Risk Reserves investment portfolio.

•

On March 30, 2009, the FDIC collected about $90.0 million in fees related to the transaction
account guarantee program under the TLGP. However, on March 31, 2009, all funds were
transferred to the DIF portfolio for reimbursement of claims and expenses, so the newly
established Transaction Account Guarantee Program investment portfolio had no balance at
month end.

The Treasury Market
•

During the first quarter of 2009, Treasury yields increased modestly, with longer-maturity
Treasuries posting the largest yield increases. Although Treasury yields remain relatively low
amid continued flight-to-quality trades and in light of the weak U.S. economy, the modestly
higher yields appeared to generally reflect concerns over the increasing supply of Treasury
securities. The three-month Treasury bill (T-Bill) and the six-month T-Bill yields increased by
12 basis points and 16 basis points, respectively. The yield on two-year Treasury note, which
also is very sensitive to actual and anticipated changes in the federal funds rate, as well as to
flight-to-quality concerns, increased by only four basis points during the first quarter.
Intermediate- to longer-maturity Treasury security yields also increased, with longer-maturity
Treasuries posting the largest increases. The yield on the five-year Treasury note increased by
12 basis points, while the yield on the ten-year Treasury note increased by 45 basis points.
Accordingly, the conventional Treasury yield curve steepened during the first quarter of 2009;
on March 31, 2009, the two- to ten-year yield curve had a 186-basis point positive spread
(compared to a positive 154-basis point spread at the beginning of the quarter). Over the past
five years, this spread has averaged 82 basis points.

Prospective Strategies
•

The second quarter 2009 DIF investment strategy calls for placing all net proceeds from deposit
insurance assessments, maturing securities, TLGP surcharges, coupon and other interest
payments, and receivership dividends into overnight investments and/or short-term T-Bills in
anticipation of using such funds for resolution activities.
5

III. Budget Results (See pages 14 – 15 for detailed data.)
Approved Budget Modifications
The 2009 Budget Resolution delegated to the Chief Financial Officer (CFO) and selected other
officials the authority to make certain modifications to the 2009 Corporate Operating Budget.
The following budget reallocations were made during the first quarter in accordance with the
authority delegated by the Board of Directors. These reallocations did not change the total
2009 Corporate Operating Budget approved by the Board:
•

In January 2009, the Division of Supervision and Consumer Protection (DSC) and the
Division of Information Technology (DIT) reallocated budget authority among major
expense categories within their approved budgets. DSC reallocated funds within the
Ongoing Operations budget component among four major expense categories to better
reflect projected expenses by reducing Travel by $1,296,183, increasing Outside Services –
Personnel by $1,081,431, increasing Outside Services – Other by $143,406, and increasing
Other Expenses $71,346. DIT reallocated $196,198 in budget authority from the
Equipment expense category to the Outside Services – Other expense category within the
Receivership Funding budget component to correct the misclassification of budget authority
for cell phones.

•

In February 2009, the CFO approved the reallocation of budget authority within the Salaries
and Compensation expense category to ensure that the awards budget in all divisions and
offices, except for the Office of Inspector General, was consistent with established
corporate practices. Excess funds totaling $1,749,368 were reallocated to the Corporate
Unassigned budget and will be available to meet new budget requirements that emerge
during the year.

•

In February 2009, the CFO approved the reallocation of budget authority to provide funding
for an increase in authorized staffing for DSC. Funds totaling $1,919,037 were transferred
from the Corporate Unassigned budget in the Ongoing Operations component to DSC’s
Salaries and Compensation budget to provide funding for the additional staff.

•

In February 2009, the CFO approved the reallocation of $91,456 in budget authority within
the Ongoing Operations component of the 2009 Corporate Operating Budget from the
Division of Finance to the Office of the Ombudsman to realign funding for approved
staffing modifications.

•

In March 2009, the CFO approved the reallocation of $10,131,882 in budget authority
within the Receivership Funding component of the 2009 Corporate Operating Budget from
the Corporate Unassigned budget to the DIT budget to support the establishment of the
temporary West Coast Satellite Office. Funding was provided for additional contractor
support as well as laptops and other equipment required in connection with the projected
increase in failure workload. DIT’s Receivership Funding budget was increased by
$9,321,939 in Equipment, $512,867 in Outside Services – Personnel, and $297,076 in
Outside Services – Other.

6

Approved Staffing Modifications
The 2009 Budget Resolution delegated to the CFO the authority to modify Authorized 2009
Staffing for divisions and offices, as long as those modifications did not increase the total
approved 2009 Corporate Operating Budget. The following changes were approved by the
CFO in accordance with the authority delegated to him by the Board of Directors:
•

In February 2009, the CFO approved an increase of 26 positions (16 permanent, 10 nonpermanent) in DSC’s authorized 2009 staffing. Ten non-permanent positions were
approved to address the increasing workload associated with the Troubled Asset Relief
Program (TARP), the TLGP, and the increasing number of problem institutions. Fifteen
permanent positions were approved to provide increased oversight of “systemically
important” institutions and holding companies. The final permanent position was approved
for an Examination Specialist to perform liaison responsibilities with the Departments of
Justice and Homeland Security on critical infrastructure protection matters. A budget
adjustment was made in conjunction with this approval.

•

In February 2009, the CFO approved a reduction of one authorized position in the Division
of Finance (DOF) based on a determination that the position was no longer essential to
DOF operations. A budget adjustment was made in conjunction with this approval.

•

In February 2009, the CFO approved the increase of one authorized position in the Office
of the Ombudsman (OO). The additional position will allow OO to perform critical duties
that it was unable to accomplish with its current authorized staff. A budget adjustment was
made in conjunction with this approval.

•

In March 2009, the CFO approved an increase of one authorized staff position in the Office
of the Chairman for a Senior Advisor. A budget adjustment will be made in April in
conjunction with this approval.

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, 2009, are defined
as those that either (1) exceed the YTD budget by $3.0 million and represent more than 5
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 represent more than 10 percent of the major expense category or total division/office
budget.
Significant Spending Variances by Major Expense Category
Ongoing Operations
There were significant spending variances in two major expense categories during the first
quarter in the Ongoing Operations component of the 2009 Corporate Operating Budget:
•

Outside Services – Personnel expenditures were $5.5 million, or 15 percent, more than
budgeted. The variance was largely due to higher-than-projected system maintenance
7

expenses in DIT during the first quarter. This included unbudgeted expenses associated
with systems supporting the TLGP. The CIO Council will reprioritize funding for overall
IT projects during the remainder of the year to stay within the IT systems development and
maintenance allocation in the DIT budget. In addition, higher-than-projected expenses
were incurred for IT security monitoring during the first quarter; these expenses are
expected to be lower than budgeted for the rest of the year. Unbudgeted expenses were also
incurred for data center costs related to the Document Management System contract.
Outside counsel litigation expenses incurred by the Legal Division were slightly above
budget in the first quarter.
•

Equipment expenditures were $3.8 million, or 34 percent, more than budgeted. The
variance was largely due to accelerated Technical Refresh purchases (budgeted to occur
later in the year) and the procurement of software for laptops for new FDIC staff and
contractors. Additional budget authority may be requested to cover these unbudgeted
laptop software expenses.

Receivership Funding
The Receivership Funding component of the 2009 Corporate Operating Budget includes
funding for expenses that are incurred in conjunction with institution failures and the
management and disposition of the assets and liabilities of the ensuing receiverships, except for
salary and benefits expenses for permanent employees assigned to the receivership
management function.
There were significant spending variances in all seven major expense categories during the first
quarter in the Receivership Funding component of the 2009 Corporate Operating Budget:
•
•
•
•
•
•
•

Salaries & Compensation ($13.7 million, or 57 percent, less than budgeted).
Outside Services – Personnel ($77.6 million, or 50 percent, less than budgeted).
Travel ($10.8 million, or 73 percent, less than budgeted).
Buildings ($5.5 million, or 37 percent, less than budgeted).
Equipment ($6.2 million, or 49 percent, less than budgeted).
Outside Services – Other ($5.9 million, or 84 percent, less than budgeted).
Other Expenses ($10.2 million, or 80 percent, less than budgeted).

In all cases, these variances occurred because the Receivership Funding budget authority was
generally spread evenly throughout the year, although actual expenses are expected to increase
each quarter as the cumulative number of failures and the inventory of assets under
management grows. Budget authority in the Receivership Funding component will be
reallocated in April to more accurately reflect quarterly expense projections.

8

Significant Spending Variances by Division/Office1
Three organizations had significant spending variances through the end of the first quarter:
•

The Division of Resolution and Receiverships spent $94.7 million, or 46 percent, less than
budgeted. This variance was attributable to under spending in the Receivership Funding
component of its operating budget for the reasons identified above.

• The Legal Division spent $20.7 million, or 43 percent, less than budgeted. Approximately
$19.7 million of this variance was due to under spending in the Receivership Funding
component of the division’s operating budget for the reasons identified above.
• The Division of Administration spent $11.0 million, or 20 percent, less than budgeted. This
variance was largely attributable to delays in building out the Boston Area Office and in
relocating the New York Regional Office, delays in improvements and more favorable
landlord concessions at the temporary West Coast Satellite Office, lower-than-projected
expenses for bank closing security services, temporary delays in planned capital
improvement projects at the Student Residence Center, and temporary delays in purchasing
Furniture, Fixtures and Equipment.
Other Matters
In accordance with the requirements of the 2009 Budget Resolution, an analysis of 2009
funding requirements for employee salaries and compensation was completed after the close of
the first quarter. The analysis determined that those costs had been over-estimated by
approximately $3.1 million during the preparation of the 2009 Corporate Operating Budget.
This represents only about three-tenths of 1 percent of the 2009 Salaries and Compensation
budget. Because projected supervisory and resolutions workload has risen substantially since
the 2009 Corporate Operating Budget was formulated, the CFO decided not to exercise the
authority delegated to him in the 2009 Board Resolution to modify the 2009 Corporate
Operating Budget. The projected surplus funding will be reserved for reallocation to meet new
budget requirements that emerge during 2009. Increased funding in the Salaries and
Compensation expense category is expected to be needed later in the year as staff is added to
address increases in supervisory and resolutions workload.

1

Information on division/office variances reflects variances in the combined Corporate Operating and Investment Budgets
as seen at the bottom of page 15.

9

FDIC CFO REPORT TO THE BOARD – First Quarter 2009
Fund Financial Results

($ in Millions)

Balance Sheet
Unaudited
Mar-09
Cash & cash equivalents - unrestricted
$
1,636
Cash & cash equivalents - restricted - systemic risk
6,086
Investment in U.S. Treasury obligations, net
24,909
Preferred stock - systemic risk
3,025
Assessments receivable, net
2,550
Receivable, net - systemic risk
683
Interest receivable on investments and other assets, net
342
Receivables from resolutions, net
18,145
Property, buildings and other capitalized assets, net
372
Total Assets $ 57,748
754
Accounts payable and other liabilities
Liabilities due to resolutions
5,420
Guarantee obligations - systemic risk
8,396
Postretirement benefit liability
114
Contingent Liabilities: future failures
28,459
Contingent Liabillties: systemic risk
1,398
Contingent Liabilities: litigation losses & other
200
Total Liabilities $ 44,741
FYI: Unrealized gain on available-for-sale securities, net
1,919
25
FYI: Unrealized postretirement benefit gain
FUND BALANCE $ 13,007

Deposit Insurance Fund
Quarterly
Unaudited
Audited
Mar-08
Change
Dec-08
$
1,011 $
8,080
625 $
2,377
0
3,709
27,859
43,626
(2,950)
0
0
3,025
1,018
442
1,532
1,138
0
(455)
406
623
(64)
751
15,766
2,379
369
347
3
$ 49,944 $
53,869
7,804 $
185
127
569
4,672
0
748
2,078
0
6,318
114
116
0
23,981
583
4,478
1,438
0
(40)
200
200
0
1,026
$ 32,668 $
12,073 $
2,250
486
(331)
25
19
0
$ 17,276 $
(4,269) $
52,843

Year-Over-Year
Change
$
(6,444)
6,086
(18,717)
3,025
2,108
683
(281)
17,394
25
$
3,879
627
5,420
8,396
(2)
27,876
1,398
0
$
43,715
1,433
6
$
(39,836)

Net Assessment Revenue and Cash Outlays for Bank Failures
$25,000
$20,606

$ in Millions

$20,000

$15,000

$10,000
$7,947
$3,877

$5,000
$448

$640

$24

$1,710

$2,615
$996

$881

$0
1 Qtr. 2008

2 Qtr. 2008

3 Qtr. 2008

Assessment Revenue
Income Statement

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

4 Qtr. 2008

1 Qtr. 2009

Cash Outlays

Deposit Insurance Fund
Unaudited Year-Over-Year
Unaudited
Audited
Mar-08
Change
Mar-09
Dec-08
$
2,615 $
2,965
$
448 $
2,167
73
1,464
0
73
212
2,072
618
(406)
136
775
0
136
1
2
31
1
$
3,038 $
7,307
$
1,067 $
1,971
266
1,033
238
28
73
1,464
0
73
6,637
41,839
525
6,112
0
4
1
(1)
$
6,976 $ 44,340
$
764 $
6,212
$
(3,938) $ (37,033)
$
303 $
(4,241)
(331)
1,891
127
(458)
0
5
0
0
(4,699)
$
(4,269) $ (35,137)
$
430 $

Failed Banks with Loss Sharing Agreements since November 21, 2008 by Loss Estimate
$1,600
$1,400

$1,370.9

$ in Millions

$1,200
$1,000
$728.5

$800
$600
$400

$132.5

$200

$179.3

$209.9
$12.5

$42.3

$28.5

$10.4

$72.1

Pinnacle
Bank

Heritage
Community

Freedom
Bank

Colorado NB

TeamBank
NA

$0
Downey S&L

PFF B&T

Suburban
FSB

County Bank Alliance Bank

10

Fund Financial Results - continued

($ in Millions )

Statements of Cash Flows

Deposit Insurance Fund

Unaudited
Unaudited
Audited
Mar-08
Mar-09
Dec-08
$
303
Net (Loss)/Income $ (3,938) $ (37,033)
80
457
129
Amortization of U.S. Treasury obligations (unrestricted)
57
(272)
(80)
TIPS Inflation Adjustment
15
55
13
Depreciation on property and equipment
6,637
41,839
525
Provision for insurance losses
0
5
0
Unrealized gain on postretirement benefits
(136)
(775)
0
(Gain) on sale of UST obligations
32
(2)
0
Systemic risk expenses
(1,031)
(26,336)
(94)
Net change in operating assets and liabilities
$
796
1,716 $ (22,062)
Net Cash Provided by (Used by) Operating Activities $
2,619
21,209
3,039
Investments matured and sold
Investments purchased (includes purchase of property and
(2)
(4)
0
equipment)
2,617 $ 21,205
$
3,039
Net Cash Provided by (Used by) Investing Activities $
4,334
(857)
3,835
Net Increase (Decrease) in Cash and Cash Equivalents
3,388
4,245
4,245
Cash and Cash Equivalents at beginning of year
1,636
1,011
8,080
Unrestricted Cash and Cash Equivalents - Ending
6,086
2,377
0
Restricted Cash and Cash Equivalents - Ending
8,080
7,722 $
3,388
$
Cash and Cash Equivalents - Ending $
Selected Financial Data
FSLIC Resolution Fund

Year-Over-Year
Change
$
(4,241)
(49)
137
2
6,112
0
(136)
32
(937)
$
920
(420)

Unaudited
Unaudited
Audited
Quarterly
$20.8
Change
Mar-08
Mar-09
Dec-08
0 $
$
3,467 $
3,467 $
3,415
(123,944) (123,948)
(123,825)
4
3,498
3,494
3,444
4
$
5 $
63
$
23
1
3
1
0
254
77
$
4 $
(178)
$
(55)

Year-Over-Year
Change
52
$
(119)
54
$
(18)
0
(77)
59
$

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

$

$

(2)
(422)
499
(857)
(6,444)
6,086
(358)

Receivership Selected Statistics March 2009 vs. March 2008
Year-to-Date ($ in millions)
Total Receiverships
Assets in Liquidation
Collections
Dividends Paid

DIF
Mar-09
Mar-08
61
23
$ 16,061 $
821
$ 1,614 $
48
$ 3,838 $
58

Change
38
15,240
1,566
3,780

FRF
Mar-09
Mar-08
8
11
$
34 $
32
$
4 $
1
$
- $
1

ALL FUNDS
Change
Mar-09
Mar-08
(3)
69
34
2 $ 16,095 $
853
3 $ 1,618 $
49
(1) $ 3,838 $
59

DIF Receivership Assets-in-Liquidation by Asset Type
as of March 31, 2009
Total = $16.0 billion
$ in Millions
Other
Assets/Judgments,
$822, 5.1%

Real Estate
Mortgages, $8,845,
55.2%

Owned Assets,
$1,101, 6.9%

Securities, $3,011,
18.8%

Commercial Loans,
$1,862, 11.6%

Consumer Loans,
$332, 2.1%

11

Net Invsmts in Subs,
$42, 0.3%

Change
35
15,242
1,569
3,779

Deposit Insurance Fund Portfolio Summary
(Dollar Values in Millions)
Par Value
Amortized Cost
Market Value
1

Primary Reserve
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)

3/31/09

12/31/08

Change

$23,719
$24,522
$26,440

$25,496
$26,580
$28,830

($1,777)
($2,058)
($2,390)

$26,772
100.0%

$29,227
100.0%

($2,455)
0.0%

0.140%

8.550%

not applicable

(0.320%)
46.0

11.334%
(278.4)

not applicable
not applicable

4.43%

4.59%

(0.16%)

2.95

3.34

(0.39)

2.55
2.70

2.85
2.94

(0.30)
(0.24)

not applicable

not applicable

4

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

5

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 percent "yield beta" factor is applied to its real yield duration to arrive at an estimated
effective duration.

5

In early August 2008, management reclassified all of the DIF portfolio's HTM securities as AFS securities effective as of June
30, 2008, because the FDIC could no longer assert it had the posititive intent and ability to hold its HTM securities until their
maturity dates.

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

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

12/31/08

Change

$5,674
0.67%
34

$3,447
1.21%
23

$2,227
(0.54%)
11

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 Curve
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%

03/31/09 Conventional

12/31/08 Conventional

12

10 Y
ear

7 Ye
ar

5 Ye
ar

4 Ye
ar

3 Ye
ar

2 Ye
ar

1 Ye
ar

0.00%
3 Mo
nth
6 Mo
nth

6

3/31/09

Investment Strategies
DEPOSIT INSURANCE FUND
Strategy as of 1st Quarter 2009
Invest all proceeds from deposit insurance assessments, maturing securities, coupon and other
interest payments, and receivership dividends in overnight investments and/or in short-term Treasury
bills in anticipation of using such funds for resolution activities.

Strategy Changes for 2nd Quarter 2009
No changes in strategy.

DEBT GUARANTEE PROGRAM
OTHER GUARANTEE SYSTEMIC RISK RESERVES
Strategy as of 1st Quarter 2009
For the Debt Guarantee Program portfolio, strategically invest all available funds in overnight
investments and/or in conventional or callable Treasury securities with effective maturity dates not to
exceed June 30, 2012. (Other Systemic Risk Reserves were invested solely in overnight
investments.)

Strategy Changes for 2nd Quarter 2009
Strategically invest all available funds in overnight investments and/or in conventional or callable
Treasury securities with effective maturity dates not to exceed December 31, 2012.

NATIONAL LIQUIDATION FUND
Strategy as of 1st Quarter 2009
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 2009
Maintain an overnight deposit balance within a target range of $15 million to $25 million.

13

Executive Summary of 2009 Budget and Expenditures
by Major Expense Category
Through March 31, 2009
(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

$194,808
37,056
16,836
15,544
11,091
5,420
3,406

$179,903
42,521
16,593
13,634
14,912
4,860
2,240

92%
115%
99%
88%
134%
90%
66%

($14,905)
5,465
(243)
(1,910)
3,821
(560)
(1,166)

Total Ongoing Operations
Receivership Funding

$284,161

$274,663

97%

($9,498)

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

$24,020
155,823
14,750
14,791
12,766
6,984
12,661

$10,292
78,195
3,911
9,272
6,536
1,112
2,499

43%
50%
27%
63%
51%
16%
20%

($13,728)
(77,628)
(10,839)
(5,519)
(6,230)
(5,872)
(10,162)

$241,795

$111,817

46%

($129,978)

$525,956

$386,480

73%

($139,476)

Investment Budget 1

$1,874

$1,326

71%

($548)

Grand Total

$527,830

$387,806

73%

($140,024)

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 2009 spending estimates
for approved projects.

14

Executive Summary of 2009 Budget and Expenditures
by Budget Component and Division/Office
Through March 31, 2009
(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
Total, Corporate Operating Budget
Investment Budget

$119,104
55,919
55,676
206,133
48,527
8,931
8,054
6,859
8,321
6,443
1,989
$525,956

$107,714
57,426
44,635
111,463
27,788
8,286
6,670
5,911
9,654
5,176
1,757
$386,480

90%
103%
80%
54%
57%
93%
83%
86%
116%
80%
88%
73%

($11,390)
1,507
(11,041)
(94,670)
(20,739)
(645)
(1,384)
(948)
1,333
(1,267)
(232)
($139,476)

$1,714
102
58
$1,874

$1,195
76
55
$1,326

70%
75%
95%
71%

($519)
(26)
(3)
($548)

$119,104
57,633
55,676
206,235
48,527
8,989
8,054
6,859
8,321
6,443
1,989
$527,830

$107,714
58,621
44,635
111,539
27,788
8,341
6,670
5,911
9,654
5,176
1,757
$387,806

90%
102%
80%
54%
57%
93%
83%
86%
116%
80%
88%
73%

($11,390)
988
(11,041)
(94,696)
(20,739)
(648)
(1,384)
(948)
1,333
(1,267)
(232)
($140,024)

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
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 2009 spending estimates
for approved projects.

15