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

Deputy to the Chairman and CFO

November 21, 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:

Third Quarter 2008 CFO Report to the Board

The attached report highlights the Corporation’s financial activities and results for the period ending
September 30, 2008.
Executive Summary
•

The Deposit Insurance Fund (DIF) balance decreased by 23.5 percent ($10.629 billion) to
$34.588 billion during the third quarter of 2008. The third quarter 2008 decrease was primarily
due to the $11.930 billion increase in the provision for insurance losses mainly related to
anticipated failures, partially offset by an $881 million increase in assessment revenue.

•

During the third quarter of 2008, the FDIC was named receiver for nine failed institutionsIndyMac Bank of Pasadena, California; First National Bank of Reno, Nevada; First Heritage
Bank of Newport Beach, California; First Priority Bank of Bradenton, Florida; The Columbian
Bank and Trust Company of Topeka, Kansas; Integrity Bank of Alpharetta, Georgia; Silver
State Bank of Henderson, Nevada; Ameribank, Inc. of Northfork, West Virginia; and
Washington Mutual Bank (WaMu) of Henderson, Nevada. The combined total assets at
inception for these institutions were $337 billion with an estimated loss totaling $11 billion.
The corporate cash outlay during the third quarter for these failures was $22 billion.
WaMu, with total assets of $299 billion and total deposits of $188 billion, is the largest failed
institution in the history of the FDIC. JPMorgan Chase acquired the assets and assumed all the
deposits. All depositors were fully protected and there will be no loss to the DIF. IndyMac
Bank had assets totaling $28 billion and total deposits of $19 billion and is the fourth largest
institution to fail in FDIC history. All insured, non-brokered deposits and substantially all the
assets were transferred to IndyMac Federal Bank, FSB, a newly chartered federal financial
institution, for which the FDIC has been named conservator. The FDIC will continue to
operate the conservatorship until future sale. The current loss estimate for the IndyMac Bank
receivership is $8.9 billion.

•

As of June 30, 2008, the DIF reserve ratio stood at 1.01 percent, which is the lowest reserve
ratio for a combined bank and thrift fund since March 1995. Because the fund reserve ratio has
fallen below 1.15 percent, the FDIC is required, pursuant to the Federal Deposit Insurance
Reform Act of 2005, to establish a restoration plan to restore the reserve ratio to at least 1.15

percent no later than five years after the establishment of the plan. As part of the plan, the
Board proposes to increase assessment rates by 7 basis points uniformly, from a range of 5 to
43 basis points to a range of 12 to 50 basis points, for the first quarter 2009 insurance coverage
only. Beginning with the second quarter 2009 coverage, the initial assessment rates would
range from 10 to 45 basis points. In addition, the FDIC is proposing several adjustments,
related to unsecured debt, secured liabilities, and brokered deposits that are designed to ensure
that riskier institutions will bear a greater share of the proposed increase in assessment rates,
thereby reducing the subsidization of riskier institutions by safer ones.
•

For the nine months ending September 30, 2008, Corporate Operating and Investment Budget
related expenditures ran below budget by 4 percent ($32 million) and 14 percent ($3 million),
respectively. The variance with respect to the Corporate Operating Budget expenditures was
primarily the result of lower spending for contractual services in the Ongoing Operations
component of the budget through the third quarter.

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

Financial Results
I. Financial
Statements

Trends and Outlook
Comments
On October 13, 2008, a systemic risk determination was invoked by the
Secretary of the Treasury (in consultation with the President) following
recommendation of the Boards of the FDIC and the Federal Reserve. A
systemic risk finding is invoked when it is determined that the failure of
an institution or institutions could threaten the stability of the entire
financial system. In response to this finding, the FDIC implemented the
Temporary Liquidity Guarantee Program (TLGP) as part of a larger
government effort to strengthen confidence and encourage liquidity in
the nation’s banking system. For participating entities, the program
provides guarantees for certain senior unsecured debt of insured
depository institutions and certain holding companies; and provides
unlimited coverage for noninterest-bearing transaction accounts held by
insured depository institutions through December 31, 2009. The TLGP
Final Rule was issued on Friday, November 21, 2008.

2

Financial Results
II. Investments

•

•

Trends and Outlook
Comments
The DIF investment portfolio’s amortized cost (book value) decreased
significantly by $18.8 billion during the first nine months of 2008, and
totaled $31.7 billion on September 30, 2008. The decline was primarily
the result of funding failed institution resolutions during the first nine
months of 2008. At quarter end, the DIF investment portfolio yield was
4.71 percent, almost equal to its December 31, 2007, yield of 4.72
percent. While substantial amounts of Treasury Inflation-Protected
Securities (TIPS) and longer-duration conventional Treasury securities
were sold during the third quarter of 2008, the portfolio’s relatively
stable yield reflects, in part, the fact that the DIF portfolio’s securities
have generally similar yields across maturity sectors. At quarter end,
the DIF portfolio had only $851.2 million in overnight investments,
down dramatically from its second quarter ending balance of $9.3
billion. Resolution-related outlays prompted drawing down the
overnight investment balance prior to liquidating securities. In fact, this
somewhat high $851.2 million overnight investment was because the
DIF received $618.6 million in assessments on September 30, 2008.
Conventional Treasury market yields declined dramatically during the
third quarter of 2008 as the deepening economic crisis and financial
market turmoil prompted a flight to quality with burgeoning investor
demand for Treasury securities. The yield declines also reflected
growing consensus expectations for additional federal funds target rate
cuts. Not surprisingly, the yield declines on intermediate- to longermaturity Treasury security yields were less dramatic than those of
shorter-maturity securities. During the fourth quarter of 2008, Treasury
yields are expected to continue to be volatile as market participants
gauge whether financial and economic market turmoil is subsiding,
prompting Treasury prices to fall; or whether financial and economic
market turmoil is deepening, prompting further flight-to-quality
Treasury price rallies.

3

Financial Results
III. Budget

•

Trends and Outlook
Comments
Approximately $759 million was spent in the Ongoing Operations
component of the 2008 Corporate Operating Budget, which was $32
million (4 percent) below the budget for the nine months ending
September 30, 2008. The Outside Services - Personnel expense
category was approximately $21 million below its year-to-date budget,
and the Salaries and Compensation category was $9 million below its
year-to-date budget. Together, these two categories represented 91
percent of the total Ongoing Operations variance.

•

Approximately $74 million was spent in the Receivership Funding
component of the 2008 Corporate Operating Budget, which was $0.3
million (0.5 percent) less than the budget for the nine months ending
September 30, 2008. Spending during the third quarter was
significantly more than in the first two quarters as resolutions and
receivership activities occurred at a greater pace than during the first
half of the year. In September, the Board approved an increase in the
Receivership Funding budget component from $75 million to $150
million. If the growth in the resolutions and receivership management
workload continues at its current pace, the budget requirement for 2009
will be much higher.

•

Authorized staffing has increased 17 percent from 4,810 at the
beginning of the year to 5,621 as of September 30, 2008, due to the
increase in resolutions and receivership management activity and the
elevated examination workload. The majority of the authorized staffing
increase is for hiring non-permanent employees. This trend is also
likely to continue into the 2009 budget year.

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

For the nine months ending September 30, 2008, DIF reported a comprehensive loss of
$17.825 billion compared with comprehensive income of $1.589 billion for the same period
last year. This $19.414 billion year-over-year decrease was primarily due to a $22.620 billion
increase in the provision for insurance losses, partially offset by a $1.565 increase in
assessment revenue, a $1.353 billion increase in the unrealized gain on available-for-sale
(AFS) securities and a $473 million realized gain on the sale of AFS securities.

•

The provision for insurance losses was $22.676 billion for the nine months ending September
30, 2008. The total provision consists mainly of the provision for future failures ($11.602
billion) and the losses estimated at failure for the 13 resolutions to date ($10.962 billion), the
largest of which was the $8.9 billion loss estimate for the IndyMac resolution. In contrast, the
total provision for insurance losses for the nine months ending September 30, 2007 was $56
million.
4

•

DIF’s year-to-date assessment revenue was $1.969 billion as of September 30, 2008,
compared with $404 million for the nine months ending September 30, 2007. The 2008
revenue consists of: 1) $1.073 billion in collections for the first and second quarters; 2) $890
million estimated to be received at the end of the fourth quarter for third quarter insurance
coverage; and 3) $6 million in adjustments recognized in 2008 for fourth quarter 2007
coverage. Of the $4.7 billion in one-time assessment credits granted, only $312 million
remained as of September 30, 2008.

•

Net receivables from resolutions increased by $12.2 billion to $14.4 billion during the third
quarter 2008. This increase was mostly due to $8.4 billion in funding provided to the
IndyMac conservatorship during the third quarter and an increase of $1.4 billion in net
subrogated accounts (claims against the receivership) and loans to the receiverships for the
nine new resolutions over the past three months.

FSLIC Resolution Fund (FRF)
•

FRF’s net loss was $74 million for the third quarter of 2008 compared to $14 million net
income earned during the second quarter. The loss was primarily due to the recognition of an
$85.5 million loss related to a Goodwill judgment, partially offset by $15.9 million in interest
earned on U.S. Treasury obligations. In addition to the above, FRF paid a previously
recognized Goodwill judgment to Fifth Third Bank in the amount of $76.6 million.

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

The amortized cost (book value) of the DIF investment portfolio decreased dramatically,
dropping by $18.757 billion, or by 37.2 percent, from $50.469 billion on December 31, 2007,
to $31.712 billion on September 30, 2008. The DIF portfolio’s market value dropped by
$18.967 billion or by 36.2 percent, from $52.378 billion on December 31, 2007, to $33.411
billion on September 30, 2008.

•

The DIF investment portfolio’s total return for the first nine months of 2008 was 4.39 percent,
approximately 21 basis points less than its benchmark, the Merrill Lynch 1-10 Year U.S.
Treasury Index (Index), which had a total return of 4.61 percent during the same period. The
DIF portfolio’s large cash balances held during the first half of the year acted as a drag on total
return performance. In addition, the DIF portfolio’s TIPS considerably underperformed the
Index’s conventional Treasury securities during the third quarter.

•

During the third quarter of 2008, to help fund resolution obligations, staff sold a total of 22
securities on seven occasions. These securities had a total book value of $8.872 billion, a total
market value of $9.345 billion, a weighted average maturity of 4.88 years, and a weighted
average effective yield-at-cost of 5.93 percent. These security sales resulted in realized gains
of $473 million. On September 30, 2008, the DIF portfolio’s overnight investment balance was
$851.2 million, which includes the receipt of $618.6 million in assessments on September 30,
2008.

5

The Treasury Market
•

During the third quarter of 2008, conventional Treasury market yields decreased dramatically
as the deepening economic crisis and financial market turmoil prompted a flight to quality with
burgeoning investor demand for Treasury securities. The yield declines also reflected growing
consensus expectations for additional federal funds target rate cuts. The three-month Treasury
bill (T-Bill) and the six-month T-Bill yields decreased by 83 basis points and 54 basis points,
respectively. The two-year Treasury note, which is also very sensitive to actual and anticipated
changes in the federal funds rate, as well as to flight-to-quality concerns, posted a yield decline
of 66 basis points during the third quarter. Intermediate- to longer-maturity Treasury security
yields also decreased over the course of the third quarter, although not surprisingly, the yield
declines were somewhat less dramatic then those of shorter-maturity securities. The yield on
the five-year Treasury note declined by 35 basis points, while the yield on the ten-year note
dropped by 15 basis points. The conventional Treasury yield curve steepened during the third
quarter of 2008, reflecting the drop in yields on shorter-maturity Treasuries. On September 30,
2008, the two-year to ten-year yield curve had a 186-basis point positive spread (compared to a
positive 135-basis point spread at the beginning of the quarter). Over the past five years, this
spread has averaged 87 basis points.

•

During the third quarter of 2008, in stark contrast to conventional Treasury yields, TIPS real
yields increased sharply over the course of the third quarter. For example, the real yield on the
five-year TIPS maturing on July 15, 2013, increased by 124 basis points. The real yield on the
10-year TIPS maturing on January 15, 2017, increased by 83 basis points. Some analysts were
attributing the rise in real yields to a sharp drop in inflation expectations given the recent
collapse in oil and other commodity prices. In fact, current TIPS real yields indicate market
expectations are that deflation over the near term is a distinct possibility. As of the end of the
third quarter 2008, on a par value basis, 9.2 percent of the DIF portfolio is invested in TIPS.

Prospective Strategies
•

The current DIF investment strategy calls for placing all net proceeds from deposit insurance
assessments, maturing securities, coupon and other interest payments, and receivership
dividends into overnight investments and short-term T-Bills in anticipation of possible funding
needs for resolution activities. (See attached Approved Investment Strategy.)

III. Budget Results (See pages 14 – 15 for detailed data.)
Approved Budget and Staffing Modifications
Four modifications were made to the 2008 Corporate Operating Budget and authorized staffing
during the quarter, in accordance with the authority delegated by the Board of Directors in the
2008 Budget Resolution:
•

On July 31, 2008, the Deputy to the Chairman and Chief Financial Officer (CFO) approved
mid-year adjustments to the Ongoing Operations component of the 2008 Corporate Operating
Budget. Budget authority was realigned among most divisions/offices and major expense
categories. The most significant modifications were made to the budgets of the Office of
Public Affairs, which was increased by $9.3 million to pay for contractual services for the
6

FDIC’s 75th Anniversary Deposit Insurance Public Education campaign; and the Division of
Supervision and Consumer Protection (DSC), which was increased by over $9 million to pay
for salaries and benefits and travel costs for additional staff. This increase in DSC was partially
offset by a $2.6 million reduction in Outside Services - Personnel. The mid-year adjustments
included changes to the authorized staffing for eight divisions or offices. Authorized staffing
for DSC was increased by 127 positions, primarily non-permanent loan review specialist
positions to assist with elevated examination workload. Authorized staffing for the Division of
Resolutions and Receiverships (DRR) and the Legal Division were increased by 125 and 25
positions, respectively, to address the increase in resolutions activity. Board members were
briefed on these planned staffing increases prior to their approval.
•

In August 2008, the CFO approved a requested increase of seven non-permanent positions to
provide the Division of Information Technology (DIT) with additional technical resources to
meet DRR needs related to the increase in failure activity.

•

In August 2008, the CFO also approved an increase of 30 non-permanent positions in DRR and
3 non-permanent positions in the Corporate University (CU). The DRR increase will provide
additional staff in the Dallas office to perform deposit insurance claims determinations in
connection with the projected increase in bank failures, and the CU increase will provide
resources to train the large number of new employees in the Dallas office of DRR.

•

In September 2008, the CFO approved requested increases of 339 non-permanent positions in
DRR, 25 non-permanent positions in the Legal Division, and 10 non-permanent positions in the
Division of Administration (DOA). These increases followed the Board’s approval earlier in
the month of an increase in the Receivership Funding component of the 2008 Corporate
Operating Budget from $75 million to $150 million. The DRR positions will be used to staff a
new temporary West Coast satellite office. The authorized Legal Division staffing increase
will permit the re-employment of retired attorneys and other staff to provide on-site legal
assistance at failed institutions. The increase in authorized DOA staffing will provide
additional resources to handle the increased facilities management, security, and human
resources workload that have accompanied staffing increases in DRR and DSC.

Significant Spending Variances
Significant spending variances by major expense category and division/office are discussed below.
Significant spending variances for the nine months ending September 30, 2008, are defined as
those that either 1) exceed the YTD budget by $1 million and represent more than 2 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 more than $2 million and represent more than 4
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 three major expense categories through the third
quarter in the Ongoing Operations component of the 2008 Corporate Operating Budget:

7

•

Outside Services-Personnel expenditures were approximately $21 million, or 16 percent, less
than budgeted. The variance was largely due to lower-than-anticipated litigation expenses
reimbursed to the U.S. Department of Justice for the Goodwill cases, lower contract spending
by DIT for discretionary system development projects due to the unavailability of subject
matter experts for system testing; and lower net costs for the Student Residence Center and
other administrative contracts in DOA.

•

Travel expenditures were approximately $3 million, or 7 percent, less than budgeted. The
variance was attributable to budgeted travel costs for conferences that have been deferred until
2009 and lower-than-expected travel expenses in the supervision area as staff have been
diverted to assist with resolutions activities (expensed against the Receivership Funding
component).

•

Equipment expenditures were approximately $3 million, or 10 percent, more than budgeted.
The variance was largely due to a change in the timing of planned spending for the IT
Technical Refresh program as several components were acquired earlier than budgeted. The
maintenance costs for IBM software licenses were budgeted in the fourth quarter at $1.4
million; however, the billing for this software has been occurring on a monthly basis
throughout the year. Similarly several PC/LAN hardware maintenance items were budgeted in
the fourth quarter but expensed by the end of September.

Receivership Funding
The Receivership Funding component of the 2008 Corporate Operating Budget includes 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 activity.
There were four major expense categories in which a significant spending variance occurred
through the third quarter in the Receivership Funding component of the 2008 Corporate Operating
Budget:
•

Salary and Compensation expenditures were approximately $5 million, or 50 percent, less than
budgeted, primarily due to a failure to fill newly-authorized non-permanent positions in DRR
as quickly as planned. Support for DRR hiring efforts continues to be a major corporate
priority.

•

Outside Services-Personnel expenditures were approximately $5 million, or 13 percent, greater
than budgeted, primarily due to the unanticipated increase in receivership and resolution
activity that occurred during the third quarter.

•

Buildings expenditures were approximately $2 million, or 39 percent, less than budgeted. The
budget for this category was increased during the third quarter to provide space for the
additional staffing that was authorized in DRR and other organizations but is now expected to
be expensed in the fourth quarter.

•

Outside Services-Other expenditures were approximately $1 million, or 213 percent, greater
than budgeted, primarily due to the unanticipated increase in receivership and resolution
8

activity that occurred during the third quarter. These expenses include telephone lines for callin centers, real estate and personal property taxes, filing and other court costs, advertising costs,
and bank service fees.
Significant Spending Variances by Division/Office1
Seven organizations had significant spending variances through the end of the third quarter:
•

The Division of Administration (DOA) spent approximately $7 million, or 5 percent, less than
budgeted. The variance of $4.8 million in Ongoing Operations was primarily attributable to
lower net costs for the Student Residence Center (because of increased proceeds derived from
outside use of the facility) and lower-than-budgeted spending for contractual services. A $1.8
million variance in the Receivership Funding component of DOA’s operating budget reflected
the addition of supplemental funding for facilities and equipment to support increased staffing
in DRR and other organizations that is not expected to be spent until the fourth quarter.

•

The Legal Division spent approximately $6 million, or 9 percent, less than budgeted. The
variance of $4.5 million in the Receivership Funding component of its operating budget was
largely attributable to less-than-anticipated use of outside counsel in connection with
resolutions and receivership activities. Also, there was a variance of $1.5 million in the
Ongoing Operations budget component that was related to vacancies in budgeted positions.

•

The Division of Insurance and Research (DIR) spent approximately $3 million, or 10 percent,
less than budgeted. The majority of this variance was due to vacancies in budgeted positions
and lower-than-budgeted spending for the Central Data Repository.

•

The Executive Support Offices spent approximately $3 million, or 14 percent, less than
budgeted. This variance was largely due to delayed execution of contracts for the FDIC’s 75th
Anniversary Public Education campaign.

•

The Division of Resolutions and Receiverships (DRR) spent approximately $3 million, or 4
percent, more than budgeted. This variance was attributable to overspending in the
Receivership Funding component of its operating budget due to the unanticipated increase in
resolutions and receivership activity during the third quarter.

•

The Office of Inspector General spent approximately $2 million, or 12 percent, less than
budgeted. This variance was due to vacancies in budgeted positions and later award of audit
contract task orders than was planned during budget formulation.

•

The Division of Information Technology (DIT) spent approximately $3 million, or 13 percent,
less than the 2008 spending estimate for investment projects through the third quarter. This
was primarily attributable to $2.8 million in underspending for the multiyear Claims
Administration System (CAS) investment project between January 1, 2008, and September 30,
2008, due to delays by the contractor in meeting project milestones. [Note: Unused CAS
funding is carried over for use in future periods, but may be used only for the CAS investment
project.]

1

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

9

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

($ in Millions) - Unaudited

Balance Sheet

Cash & cash equivalents
Investment in U.S. Treasury obligations, net
Assessments receivable, net
Interest receivable on investments and other assets, net
Receivables from resolutions, net
Property, buildings and other capitalized assets, net
Total Assets
Accounts payable and other liabilities
Postretirement benefit liability
Contingent Liabilities: future failures
Contingent Liabilities: litigation losses & other
Total Liabilities
FYI: Unrealized gain on available-for-sale securities, net
FYI: Unrealized postretirement benefit gain
FUND BALANCE

Sep-08
$
854
32,559
890
472
14,414
364
$ 49,553
2,923
116
11,726
200
$ 14,965
1,699
19
$ 34,588

Deposit Insurance Fund
Quarterly
Change
Sep-07
Jun-08
$
9,257 $
2,854
(8,403) $
43,218
47,933
(10,659)
627
173
263
706
695
(223)
2,057
2,179
12,235
355
357
9
54,080
$ 56,331 $
(6,778) $
1,942
208
2,715
116
114
0
70
10,590
1,136
200
200
0
2,326
$ 11,114 $
3,851 $
2,045
221
(346)
19
22
0
51,754
$ 45,217 $ (10,629) $

Year-Over-Year
Change
$
(2,000)
(15,374)
717
(234)
12,357
7
$
(4,527)
981
2
11,656
0
$
12,639
1,478
(3)
$
(17,166)

Over the past four quarters, assessment credits used declined by 66 percent. Of the $4.7 billion in one-time assessment credits
granted, $312 million (7 percent) is projected to be remaining after the third quarter 2008 assessment collections.
$1,400
$1,148

$1,200

$ in Millions

$1,000

$1,075

$936

$982

$1,014
$890

$768

$800

$731
$619

$560

$600

$456

$454
$400
$251

$168

$200

$259

$0
3rd Qtr 2007

4th Qtr 2007
Gross Assessment Revenue

1st Qtr 2008
Credits Used

Income Statement

Assessments earned
Interest earned on investment securities
Other revenue
Realized gain on sale of investments
Total Revenue
Operating expenses (includes depreciation expense)
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

2nd Qtr 2008

3rd Qtr 2008

Net Assessment Revenue

Sep-08
$
1,969
1,795
18
473
$
4,255
743
22,676
1
$ 23,420
$ (19,165)
1,340
0
$ (17,825)

Deposit Insurance Fund
Quarterly
Year-Over-Year
Change
Sep-07
Change
Jun-08
$
1,088 $
404 $
881 $
1,565
1,269
1,955
(160)
526
2
11
16
7
473
473
0
0
2,370 $
$
2,359 $
1,885
1,896 $
494
730
249
13
56
10,746
22,620
11,930
1
2
(1)
0
788 $
$ 11,241 $
22,632
12,179 $
$
(8,882) $ (10,283) $
1,582 $
(20,747)
1,686
(13)
(346)
1,353
0
20
(20)
0
(19,414)
$
(7,196) $ (10,629) $
1,589 $
FDIC Investment Portfolio as of June 30, 2008
($ in billions)

FDIC Investment Portfolio as of September 30, 2008
($ in billions)

Total market value =
$53 billion

Total market value =
$34 billion

Overnight
Investments,
$9.3, 17%
Available-forSale
Securities,
$33.0, 97%

Overnight
Investments,
0.851, 3%

Available-forSale
Securities,
$43.9, 83%

10

Fund Financial Results - continued

($ in Millions ) - Unaudited

Statements of Cash Flows

Deposit Insurance Fund

Quarterly
Year-Over-Year
Change
Sep-07
Change
Sep-08
Jun-08
1,582 $
Net (Loss)/Income $ (19,165) $ (8,882) $ (10,283) $
(20,747)
370
257
431
113
Amortization of U.S. Treasury obligations (unrestricted)
(61)
(313)
(210)
(286)
TIPS Inflation Adjustment
(103)
(27)
41
27
40
Depreciation on property and equipment
14
1
22,676
10,746
56
Provision for insurance losses
11,930
22,620
0
0
20
Unrealized gain on postretirement benefits
0
(20)
(473)
0
0
(Gain) on sale of UST obligations
(473)
(473)
(22,308)
(1,934)
5
Net change in operating assets and liabilities
(20,374)
(22,313)
4 $ (19,176) $
1,848 $
Net Cash Provided by (Used by) Operating Activities $ (19,172) $
(21,020)
15,784
5,009
6,256
Investments matured and sold
10,775
9,528
Investments purchased (includes purchase of property and
(3)
(1)
(2)
(8,204)
8,201
equipment)
(1,948) $
5,008 $
Net Cash Provided by/(Used by) Investing Activities $ 15,781 $
10,773 $
17,729
(3,391)
5,012
(100)
Net Increase (Decrease) in Cash and Cash Equivalents
(8,403)
(3,291)
4,245
4,245
2,954
Cash and Cash Equivalents at beginning of year
0
1,291
2,854 $
(2,000)
Cash and Cash Equivalents - Ending $
854 $
9,257 $
(8,403) $
Selected Financial Data
FSLIC Resolution Fund
Jun-08
Sep-08
$
3,459 $
3,444
(123,885) (123,811)
3,470
3,458
$
60 $
43
4
2
167
77
$
(115) $
(41)

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

Year-Over-Year
Quarterly
Change
Sep-07
Change
15 $
(305)
$
3,764 $
$20.8
(123,836)
(74)
(49)
3,790
12
(320)
$
150 $
(90)
17 $
2
2
2
179
(12)
90
(74) $
(113)
$
(2) $

Receivership Selected Statistics September 2008 vs. September 2007
Year-to-Date ($ in millions)
Total Receiverships
Assets in Liquidation
Collections
Dividends Paid-Cash

DIF
Sep-08
Sep-07
30
25
$ 9,481 $ 2,085
$
432 $
56
$
844 $
252

Change
5
7,396
376
592

FRF
Sep-08
Sep-07
9
15
$
34 $
32
$
7 $
39
$
4 $
1

ALL FUNDS
Change
Sep-08
Sep-07
(6)
39
40
2 $ 9,515 $ 2,117
(32) $
439 $
95
3 $
848 $
253

Change
(1)
7,398
344
595

2008 FDIC Bank Failures through September 30, 2008
($ in Millions)
Date of Failure

Location

Washington Mutual Bank

Henderson, NV

9/25/2008

$298,792

$0

$0

Ameribank, Inc.

Northfork, WV

9/19/2008

$100

$91

$42

Silver State Bank

Henderson, NV

9/5/2008

$1,795

$1,358

$505

Integrity Bank

Alpharetta, GA

8/29/2008

$1,045

$934

$295

Columbian Bank & Trust

Topeka, KS

8/22/2008

$726

$576

$62

First Priority Bank

Bradenton, FL.

8/1/2008

$241

$202

$72

First Heritage Bank, N.A.

Newport Beach, CA

7/25/2008

$289

$257

$42

First National Bank of Nevada

Reno, NV.

7/25/2008

$3,585

$2,807

$820

IndyMac Bank

Pasadena, CA

7/11/2008

$27,958

$14,300

$8,900

First Integrity Bank

Staples, MN

5/30/2008

$53

$50

$2

ANB Financial, N.A.

Bentonville, AR

5/9/2008

$2,012

$1,743

$214

Hume Bank

Hume, MO

3/7/2008

$17

$14

$3

Douglass National Bank

Kansas City, MO

1/25/2008

$53

$10

$6

11

Assets at Failure

Cash Outlays

Estimated/
Actual Loss

Institution Name

Deposit Insurance Fund Portfolio Summary
(in millions)
9/30/08

12/31/07

Change

Par Value
Amortized Cost
Market Value

$29,937
$31,712
$33,411

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

($17,625)
($18,757)
($18,967)

Primary Reserve 1
Primary Reserve % of Total Portfolio

$33,864
100.0%

$14,317
26.9%

$19,547
73.1%

4.392%
4.605%
(21.3)

8.629%
8.861%
(23.2)

not applicable
not applicable
not applicable

4.71%

4.72%

(0.01%)

4.09

4.06

0.03

3.33
3.42
not applicable

3.19
1.29
3.94

0.14
2.13

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)
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% "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)

12/31/07

Change

$2,859
2.22%
5

$393
4.22%
19

$2,466
(2.00%)
(14)

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
4.50%
3.50%

6/30/08

Conventional

9/30/08
2.50%
1.50%

9/30/08

TIPS

0.50%

6/30/08

-0.50%
-1.50%

09/30/08 Conventional

06/30/08 Conventional

12

09/30/08 TIPS

10 Y
ear

7 Ye
ar

5 Ye
ar

4 Ye
ar

3 Ye
ar

2 Ye
ar

1 Ye
ar

-2.50%
3 Mo
nth
6 Mo
nth

6

9/30/08

06/30/08 TIPS

DEPOSIT INSURANCE FUND
Strategy as of 3rd Quarter 2008
Invest all proceeds from assessments, maturing securities, coupon and other interest payments, and receivership
dividends in overnight investments for potential resolution funding needs.

Strategy Changes for 4th Quarter 2008
Allow for investing in short-term Treasury bills in addition to overnight investments.

NATIONAL LIQUIDATION FUND
Strategy as of 3rd 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 4th Quarter 2008
No changes in strategy.

13

Executive Summary of 2008 Budget and Expenditures
by Major Expense Category
Through September 30, 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

$510,379
133,585
48,996
41,391
30,460
17,930
8,813

$501,788
112,559
45,803
42,123
33,413
16,033
7,430

98%
84%
93%
102%
110%
89%
84%

($8,591)
(21,026)
(3,193)
732
2,953
(1,897)
(1,383)

Total Ongoing Operations
Receivership Funding

$791,554

$759,149

96%

($32,405)

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

$10,767
40,492
5,106
5,643
8,653
662
2,887

$5,357
45,847
5,493
3,421
8,703
2,074
2,979

50%
113%
108%
61%
101%
313%
103%

($5,410)
5,355
387
(2,222)
50
1,412
92

$74,210

$73,874

100%

($336)

$865,764

$833,023

96%

($32,741)

Investment Budget 1

$23,791

$20,486

86%

($3,305)

Grand Total

$889,555

$853,509

96%

($36,046)

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.

14

Executive Summary of 2008 Budget and Expenditures
by Budget Component and Division/Office
Through September 30, 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

$310,058
151,082
122,763
82,116
65,620
26,272
22,774
19,720
26,290
21,608
6,442
11,019
$865,764

$307,033
148,703
116,176
84,921
59,599
24,251
21,027
17,427
25,515
18,506
5,365
4,500
$833,023

99%
98%
95%
103%
91%
92%
92%
88%
97%
86%
83%
41%
96%

($3,025)
(2,379)
(6,587)
2,805
(6,021)
(2,021)
(1,747)
(2,293)
(775)
(3,102)
(1,077)
(6,519)
($32,741)

$22,508
70
977
236
$23,791

$19,531
715
240
0
$20,486

87%
1021%
25%
0%
86%

($2,977)
645
(737)
(236)
($3,305)

$310,058
173,590
122,763
82,186
65,620
27,249
22,774
19,720
26,526
21,608
6,442
11,019
$889,555

$307,033
168,234
116,176
85,636
59,599
24,491
21,027
17,427
25,515
18,506
5,365
4,500
$853,509

99%
97%
95%
104%
91%
90%
92%
88%
96%
86%
83%
41%
96%

($3,025)
(5,356)
(6,587)
3,450
(6,021)
(2,758)
(1,747)
(2,293)
(1,011)
(3,102)
(1,077)
(6,519)
($36,046)

3

Information Technology
Resolutions & Receiverships
Insurance & Research
Corporate University
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.

15