Federal Deposit Insurance Corporation 

550 17th Street, N.W., Washington, D.C. 20429-9990 Deputy to the Chairman and CFO

 

 August 10, 2009 

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: Second Quarter 2009 CFO Report to the Board 

The attached report highlights the Corporation’s financial activities and results for the period ending 

June 30, 2009. 

Executive Summary

• The Deposit Insurance Fund (DIF) balance decreased by 20 percent ($2.6 billion) to $10.4 

billion during the second quarter of 2009. The second quarter 2009 decrease was primarily due 

to an $11.6 billion increase in provision for insurance losses which was partially offset by a 

$9.1 billion increase in assessment revenue. 

• During the second quarter of 2009, the FDIC was named receiver for 24 failed institutions. The 

combined assets at inception for these institutions totaled approximately $26.9 billion with an 

estimated loss totaling $9.0 billion. The corporate cash outlay during the second quarter for 

these failures was $9.3 billion. Twelve receiverships entered into loss-share agreements with 

the acquiring institutions and are expected to pay approximately $3.4 billion over the length of 

the agreements. 

• For the six months ending June 30, 2009, Corporate Operating and Investment Budget related 

expenditures ran below budget by 13 percent ($128.4 million) and 15 percent ($441.0 

thousand), respectively. The variance with respect to the Corporate Operating Budget was 

primarily in the Receivership Funding budget component, where spending in several expense 

categories was well below budget through the second quarter. This year-to-date budget surplus 

is expected to be fully utilized in the second half of 2009 as expenses increase in future quarters 

in connection with recent and additional resolution activity. 
2

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

investments, and budget. 

Trends and Outlook

Financial Results Comments 

I. Financial 

Statements • Since the beginning of the Temporary Liquidity Guarantee Program 

(TLGP) in October 2008 to June 30, 2009, the TLGP has $792.0 million 

in estimated losses upon the failure of 54 participating institutions in the 

Transaction Account Guarantee Program (TAGP) and has incurred no 

losses from payment default under the Debt Guarantee Program (DGP). 

A graph on page 13 shows the DIF receivership claims under the TAGP 

and the estimated losses by month. Of the $2.1 billion in total 

receivership TAGP claims and $792.2 million in total estimated TAGP 

losses, one institution comprises the majority of that amount with $1.5 

billion in TAGP claims and $649.8 million in estimated losses. 

• As of June 30, 2009, TLGP has $7.4 billion in cash and cash 

equivalents. Note that the TLGP does not currently expect any new 

guarantees under the DGP after October 31, 2009 and the TAGP is 

currently scheduled to expire on December 31, 2009 (Note: There is a 

notice of proposed rulemaking that presents an alternative to extend the 

TAGP until June 30, 2010). 
3

Trends and Outlook

Financial Results Comments 

II. Investments • The DIF investment portfolio’s amortized cost (book value) decreased 

by $5.8 billion during the first half of 2009, and totaled $20.8 billion on 

June 30, 2009. The decline was largely the result of funding 45 failed 

institution resolutions during the first half of 2009. However, it should 

be noted that 20 of these bank and thrift failures were resolved as lossshare transactions (in which the acquirers purchased substantially all of 

the failed institutions’ assets and the FDIC and the acquirers entered 

into loss-share agreements) requiring little or no initial resolution 

funding, thus helping to mitigate this quarter’s decline in the portfolio 

value. At quarter end, the DIF investment portfolio yield was 3.89 

percent, down 70 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 $3.7 billion earning an ultra-low 0.10 percent 

yield. The high quarter-end overnight investment balance was 

attributable to the receipt of $2.6 billion in assessments and about 

$209.3 million in receivership dividends on June 30, 2009 (as well as 

other net cash inflows during June). 

• Most conventional Treasury market yields increased substantially 

during the second quarter of 2009, with longer-maturity Treasury 

securities posting the largest yield increases. Although Treasury yields 

remain relatively low in light of the weak U.S. economy, the higher 

yields appeared to reflect a number of factors, including growing 

sentiment that the U.S. recession might soon be ending, a reversal of 

flight-to-quality trades, and concerns over the increasing supply of 

Treasury securities. During the third quarter of 2009, Treasury yields 

are expected to continue to trade within a range around current levels, 

and to gradually rise over the course of the rest of the year. 
4

Trends and Outlook

Financial Results Comments 

III. Budget • Approximately $565.0 million was spent in the Ongoing Operations 

component of the 2009 Corporate Operating Budget, which was $12.4 

million (2 percent) below the budget for the six months ending June 30, 

2009. The Salaries and Compensation expense category was $10.8 

million below the year-to-date budget. Spending in the Outside 

Services - Personnel expense category was $6.3 million greater than the 

year-to-date budget, but this amount was more than offset by the net 

under spending in all the remaining expense categories. 

• Approximately $308.2 million was spent in the Receivership Funding 

component of the 2009 Corporate Operating Budget, which was $116.0 

million (27 percent) below the budget for the six months ending June 

30, 2009. The Outside Services - Personnel expense category was 

nearly $47.6 million below the year-to-date budget, and represented 41 

percent of the total Receivership Funding variance. In addition, the 

Salaries and Compensation and Travel expense categories ran $26.4 

million and $20.0 million under their year-to-date budgets, respectively. 

Collectively, these three expense categories represented 81 percent of 

the total year-to-date budget variance in the Receivership Funding 

component. 

I. Corporate Fund Financial Results (See pages 12 – 13 for detailed data and charts.) 

Deposit Insurance Fund (DIF) 

• For the six months ending June 30, 2009, DIF’s comprehensive loss totaled $6.9 billion 

compared with a comprehensive loss of $7.2 billion for the same period last year. This $288.0 

million reduction in the year-over-year loss was primarily due to a $10.6 billion increase in 

assessment revenue partially offset by a $7.5 billion increase in the provision for insurance 

losses and a $3.0 billion decrease in the unrealized gain on available-for-sale securities (AFS). 

The continued sale of U.S. Treasury investments to fund resolution activity also contributed to 

the change in the comprehensive loss as the realized gain from investment sales rose by $657.5 

million while the interest income earned from investments declined by $817.5 million. Other 

revenue also increased by $374.5 million, largely attributable to the collection of debt issuance 

surcharges under the TLGP. 

• Assessment revenue was $11.7 billion as of June 30, 2009 compared with $1.1 billion for the 

comparable period in 2008. A major reason for this $10.6 billion increase was the recognition 

of a $5.6 billion receivable for the special assessment to be collected on September 30, 2009. In 

regular assessment activity, DIF collected approximately $2.6 billion for first quarter 2009 

insurance coverage on June 30, 2009 and recognized a $3.4 billion receivable for second 

quarter insurance coverage to be collected on September 30, 2009. Year-to-date regular 

assessment revenue totaled approximately $6.0 billion compared with approximately $1.1 

billion for the same period in 2008. Major factors contributing to this increase in regular 

assessment revenue year-over-year include changes to the risk-based assessment regulations, 
5

ratings downgrade of many institutions (which pushed them into higher assessment rate 

categories), the decline of the one-time credit available for use, and a larger assessment base. 

• The provision for insurance losses was $18.3 billion as of June 30, 2009 compared with $10.7 

billion for the same period in 2008. The total provision consists mainly of the provision for 

future failures (approximately $8.0 billion) and the losses estimated at resolution for the 45 

failures occurring in 2009 (approximately $10.3 billion). 

• The year-to-date unrealized losses on AFS securities were $1.3 billion as of June 30, 2009 

compared with unrealized gains of $1.7 billion for the comparable period in 2008. Most of the 

year-to-date unrealized gain reported in June 2008 resulted from a one-time adjustment of $1.6 

billion for the transfer of the held-to-maturity securities to the AFS category. For year-to-date 

2009, the unrealized losses reflect a combination of: 1) increasing market yields (which lower 

the securities’ unrealized gains, thus resulting in an income statement unrealized loss for the 

period); and 2) the sale of a significant number of AFS securities (the latter of which were 

offset by the year-to-date 2009 realized gains of $657.5 million). 

• Liabilities due to resolutions were $11.1 billion at June 30, 2009 – an increase of $5.7 billion 

during the second quarter. This liability represents the amount due to the receiver for assets 

transferred to the acquirer or bridge bank for use in funding deposits. Two resolutions during 

the quarter resulted in most of this increase – Bank United, FSB ($3.1 billion) and Silverton 

Bank ($1.3 billion). 

II. Investments

Investment Results (See pages 14 – 15 for detailed data and charts.)

DIF Investment Portfolio 

• The amortized cost (book value) of the DIF investment portfolio decreased by $5.8 billion 

during the first half of 2009, or 21.8 percent, from $26.6 billion on December 31, 2008, to 

$20.8 billion on June 30, 2009. Similarly, the DIF portfolio’s market value dropped by $7.1 

billion or 24.6 percent, from $28.8 billion on December 31, 2008, to $21.8 billion on June 30, 

2009. Again, the declines were primarily the result of funding failed institution resolutions 

during the first half of 2009. 

• The DIF investment portfolio's total return for the first half of 2009 was -0.681 percent, 

approximately 175 basis points higher than its benchmark, the Merrill Lynch 1 - 10 Year U.S. 

Treasury Index (Index), which had a total return of -2.435 percent during the same period. The 

DIF portfolio’s Treasury Inflation-Protected Securities (TIPS) considerably outperformed the 

Index’s conventional Treasury securities. In addition, because the DIF conventional Treasury 

securities have a lower average duration than the securities held in the Index, and given the 

large increase in yields on longer duration securities, the DIF’s conventional Treasury 

securities outperformed those in the Index. Finally, the DIF portfolio’s high cash balances 

helped contribute to the positive relative return. 

• During the second quarter of 2008, to help fund resolution-related cash outlays, staff sold a 

total of twenty AFS conventional Treasury securities on four occasions; the securities had a 
6

total book value of $4.2 billion, a total market value of $4.7 billion, a weighted average 

maturity (WAM) of 6.6 years, a weighted average modified duration of 5.3 years, and a 

weighted average yield at cost of 4.8 percent. These security sales resulted in a realized gain of 

$521.2 million. On June 30, 2009, the DIF portfolio’s overnight investment balance was $3.7 

billion (about 17.0 percent of the portfolio by market value), to a large extent reflecting the 

receipt of approximately $2.6 billion in million regular deposit insurance assessments on June 

30, 2009. 

Other Corporate Investment Portfolios 

• During the second quarter, the book value of the DGP investment portfolio increased from $6.2 

billion on March 31, 2009, to $7.5 billion on June 30, 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. 

• During the second quarter, the Other Systemic Risk Reserves investment portfolio increased 

from $20.2 million on March 31, 2009 to $80.7 million on June 30, 2009, reflecting the May 

15, 2009 receipt of $60.5 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. 

• On June 30, 2009, the FDIC collected about $178.7 million in fees related to the TAGP under 

the TLGP. However, these funds were then immediately transferred to the DIF and the DGP 

portfolios for reimbursement of claims and expenses paid on the TAGP’s behalf, so the TAGP 

investment portfolio had no balance at month end. 

The Treasury Market 

• During the second quarter of 2009, most conventional Treasury yields increased substantially, 

with longer-maturity Treasuries posting the largest yield increases. The three-month Treasury 

bill (T-Bill) and the six-month T-Bill yields declined, albeit just slightly by 2 basis points and 8 

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 31 basis points during the second quarter, reflecting some investors’ forecast for a 

higher federal funds target rate by late this year as well as some unwinding of flight-to-quality 

trades. Intermediate- to longer-maturity Treasury security yields increased substantially; the 

yield on the five-year Treasury note increased by 90 basis points, while the yield on the tenyear Treasury note increased by 87 basis points. Accordingly, the conventional Treasury yield 

curve steepened during the second quarter of 2009; on June 30, 2009, the two-year to ten-year 

yield curve had a 242-basis point positive spread (compared to a positive 186-basis point 

spread at the beginning of the quarter). Over the past five years, this spread has averaged 83 

basis points. 
7

Prospective Strategies 

• The third quarter 2009 DIF investment strategy calls for placing all net proceeds from deposit 

insurance assessments, maturing securities, Temporary Liquidity Guarantee Program 

surcharges, coupon and other interest payments, and receivership dividends into overnight 

investment and/or short-term T-Bills in anticipation of using such funds for resolution 

activities. 

• For the DGP and Other Systemic Risk Reserves investment portfolios—which by contrast to 

the DIF portfolio are in investment mode—the third quarter 2009 investment strategy calls for 

strategically investing all available funds in overnight investments, and/or in conventional or 

callable Treasury securities with effective maturity dates not to exceed December 31, 2012. 

III. Budget Results (See pages 16 – 17 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 second quarter in accordance with the 

authority delegated by the Board of Directors (they did not change the total 2009 Corporate 

Operating Budget approved by the Board): 

• In April 2009, the CFO approved the reallocation of budget authority within the Salaries 

and Compensation expense category of the Ongoing Operations component of the 2009 

Corporate Operating Budget to reflect updated salary and benefit expense estimates for all 

divisions and offices, except for the Office of Inspector General. This reallocation followed 

a comprehensive analysis of the approved authority for salaries, bonuses, and fringe 

benefits as of March 31, 2009. Excess funds totaling $1,826,717 were identified and 

reallocated to the Corporate Unassigned budget and will be available to meet new budget 

requirements that emerge during the year.1

• In April 2009, the CFO approved the reallocation of budget authority within the Ongoing 

Operations component of the 2009 Corporate Operating Budget to provide funding for 

laptops and other equipment for new employees and contractor staff. The Equipment 

expense category of the Division of Information Technology (DIT) budget was increased 

by $2,576,085, and the Corporate Unassigned budget was decreased by the same amount. 

• In April 2009, the CFO approved the reallocation of $152,000 in budget authority within 

the Salaries and Compensation expense category of the Ongoing Operations component of 

the 2009 Corporate Operating Budget from the budget of the Chief Operating Officer 

(COO) to the budget of the CFO in connection with the addition of a position in the CFO’s 

office to assume work responsibilities transferred from the COO’s office. 

 

1

 The Corporate Unassigned budget within the Ongoing Operations component initially included only $2.5 million in 

unallocated funding approved by the Board in December 2008 for unanticipated expenses related to the implementation of 

TLGP, TARP, and other initiatives designed to address the credit and liquidity problems within the U. S. economy. As 

reported at the end of the first quarter, $1,749,368 was reallocated to this budget in February 2009, in connection with 

adjustments to the awards budgets of divisions/offices. 
8

• In April 2009, the CFO approved the reallocation of $1,000,000 in budget authority within 

the Ongoing Operations component of the 2009 Corporate Operating Budget from the 

Corporate Unassigned budget to the Outside Services – Other budget of the Office of Public 

Affairs to continue the FDIC public service announcement campaign and outreach focusing 

on deposit insurance and encouraging the use of the enhanced Electronic Deposit Insurance 

Estimator (EDIE). 

 

• In May 2009, the CFO approved the reallocation of $34,595,471 in budget authority within 

the Receivership Funding component of the 2009 Corporate Operating Budget from the 

Corporate Unassigned budget to the budgets of the Division of Resolutions and 

Receiverships (DRR), DIT, Division of Administration (DOA), and Corporate University 

(CU) for the establishment of the temporary East Coast Satellite Office (ECSO)2

. DRR 

received $20,386,767 (Salaries and Compensation $18,333,467 and Travel $2,053,300); 

DIT received $6,619,277 (Salaries and Compensation $403,632, Outside Services – 

Personnel $559,999, Equipment $5,417,970, and Outside Services–Other $237,676); DOA 

received $7,452,973 (Salaries and Compensation $1,049,425, Buildings $4,039,212, and 

Equipment $2,364,336); and CU received $136,454 (all in Salaries and Compensation) of 

the reallocated budget authority. 

• In May 2009, the CFO approved the reallocation of $8,533,213 in budget authority within 

the Receivership Funding component of the 2009 Corporate Operating Budget from the 

Corporate Unassigned budget to the Salaries and Compensation budget of DRR to fund 165 

newly-authorized positions. 

• In May 2009, the CFO approved the reallocation of $787,782 in budget authority within the 

Receivership Funding component of the 2009 Corporate Operating Budget from the 

Corporate Unassigned budget to the Salaries and Compensation budget of the Office of the 

Ombudsman (OO) to fund 12 newly-authorized positions. The reallocation was 

implemented in June. 

 

Approved Staffing Modifications 

The 2009 Budget Resolution delegated to the CFO the authority to modify approved 2009 

staffing authorizations 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 April 2009, the CFO approved an increase of one authorized permanent position in the 

CFO’s office to provide support to the COO’s staff with its growing Board case review 

workload, and for work related to Temporary Liquidity Guarantee Program (TLGP), 

Legacy Loans Program (LLP), and other high priority initiatives. A budget adjustment was 

made in the Ongoing Operations budget component in conjunction with this approval. 

• In April 2009, the CFO approved an increase of 38 authorized positions (14 permanent, 24 

non-permanent) in DOA. Most of these positions were approved to address increased 

 

2

 The Corporate Unassigned budget within the Receivership Funding component initially included $64.2 million in 

unallocated funding approved by the Board in December 2008 for budget requirements that emerge during the year in 

conjunction with receivership and resolution activities. 
9

workload demands on DOA in Washington and Dallas that are attributable to factors other 

than the increase in receivership and resolution activity and will be funded through the 

Ongoing Operations budget component. The CFO determined that sufficient funding 

would be available for these positions for the balance of 2009 in that budget component 

through the reallocation of surplus budget authority during the mid-year budget review 

process. 

• In April 2009, the CFO approved an increase of one authorized non-permanent position in 

the Office of Legislative Affairs to assist with its rapidly growing workload and will be 

funded through the Ongoing Operations budget component. The CFO determined that 

sufficient funding would be available for these positions for the balance of 2009 in that 

budget component through the reallocation of surplus budget authority during the mid-year 

budget review process. 

• In May 2009, the CFO approved an increase of 12 authorized non-permanent positions in 

OO. These positions will be distributed equally among the Irvine, Jacksonville, and Dallas 

offices. A budget adjustment was implemented in June in the Receivership Funding budget 

component in conjunction with this approval. 

• In May 2009, the CFO approved an increase of 363 authorized non-permanent positions for 

the temporary ECSO. The newly authorized positions were in DRR (+343), DOA (+13), 

DIT (+5), and CU (+2). A budget adjustment was made in the Receivership Funding 

budget component in conjunction with this approval. 

 

• In May 2009, the CFO approved an increase of three authorized permanent positions in the 

Office of Enterprise Risk Management to support its rapidly growing risk assessment 

workload associated with the increase in the corporation’s business activities and workload. 

These positions will be funded through the Ongoing Operations budget component. The 

CFO determined that sufficient funding would be available for these positions for the 

balance of 2009 in that budget component through the reallocation of surplus budget 

authority during the mid-year budget review process. 

• In May 2009, the CFO approved an increase of 165 authorized non-permanent positions in 

DRR for its Dallas (+139), Washington (+21), and Irvine (+5) offices due to current and 

projected workload. A budget adjustment was made in the Receivership Funding budget 

component 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 six months ending June 30, 2009, are defined as 

those that either (1) exceed the YTD budget by $2 million and represent more than three 

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 $3 million 

and represents more than five percent of the major expense category or total division/office 

budget. 
10

Significant Spending Variances by Major Expense Category 

Ongoing Operations

There were significant spending variances in two major expense categories through the second 

quarter in the Ongoing Operations component of the 2009 Corporate Operating Budget: 

• Outside Services-Personnel expenditures were $6.3 million, or 8 percent, more than 

budgeted. Approximately $2.6 million of this variance was attributable to expenses related 

to document management services provided to DRR, which were erroneously charged ton 

the Ongoing Operations budget component (this error will be corrected during the third 

quarter). In addition, approximately $1.9 million was spent on unbudgeted financial 

advisory services obtained in connection with preparatory work for the proposed Legacy 

Loan Program (LLP). The cost of contract services provided in support of IT systems 

maintenance and server operations also exceeded budgeted amounts during the quarter. 

• Buildings expenditures were $3.2 million, or 10 percent, less than budgeted. The variance 

was due to delays in the relocation and build-outs of the New York Regional Office, the 

Chicago Regional Office, and the Boston Area Office. 

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 five major expense categories through the second 

quarter in the Receivership Funding component of the 2009 Corporate Operating Budget: 

• Salaries & Compensation ($26.4 million or 47 percent, less than budgeted). 

• Outside Services-Personnel ($47.6 million or 18 percent, less than budgeted). 

• Travel ($20.0 million or 68 percent, less than budgeted). 

• Outside Services-Other ($8.7 million or 63 percent, less than budgeted). 

• Other Expenses ($11.6 million or 46 percent, less than budgeted). 

These variances occurred primarily because bank closings have been less costly to administer 

than anticipated due to the prevalence of structured and whole bank transactions for the first six 

months of 2009; and budgeted positions have not been filled as quickly as projected in the 

original Board approved budget. These factors led to lower-than-budgeted costs for asset 

management and liquidation, outside counsel, travel, and other expenses. With the expected 

increase in bank failures and resolution activities during the second half of the year, 

Receivership Funding expenditures should increase each quarter as the number of bank 

closings increases and the cumulative inventory of assets under management grows. Based on 
11

that assumption, we project that all or most of the surplus budget authority in the Receivership 

Funding budget component will be utilized by year-end. 

Significant Spending Variances by Division/Office3

Four organizations had significant spending variances through the end of the second quarter: 

• DRR spent $72.4 million, or 19 percent, less than budgeted. This reflected the net impact 

of under spending of approximately $80.4 million in its Receivership Funding budget for 

the reasons identified above and over spending of approximately $8.0 million in its 

Ongoing Operations budget due to the coding error referenced above, unbudgeted expenses 

for financial advisory services for LLP, and higher-than-budgeted expenses for travel in 

connection with recruiting and selection activities for the temporary West Coast Satellite 

Office, travel related to IT systems, and employee relocations. 

• The Legal Division spent $27.7 million, or 31 percent, less than budgeted. Approximately 

$23.6 million of this variance was due to under spending in its Receivership Funding 

budget because budgeted positions were not filled as projected and bank closings and 

resolution activities have required substantially less contractual legal services to date than 

anticipated. 

• DOA spent $14.9 million, or 14 percent, less than budgeted. This variance was largely 

attributable to delays in building out and relocating employees to new office space in the 

Boston Area Office, the Chicago Regional Office, and the New York Regional Office; 

temporary delays in purchasing Furniture, Fixtures and Equipment for those build outs; and 

lower-than-expected cost for leasehold improvements due to landlord concessions at the 

temporary West Coast Satellite Office. 

• DIT spent nearly $4.5 million, or 4 percent, more than budgeted. This variance included 

approximately $1.0 million in unbudgeted systems development and maintenance expenses 

in support of TLGP. In addition, DIT accelerated its planned purchases of equipment, 

including $1.0 million for servers and $0.8 million for storage and network monitoring 

software. Contract expenses for operations and control of the mid-range IT platform also 

exceeded DIT’s year-to-date budget by $1.3 million. Some of these first half expenses may 

be offset by under spending during the second half of the year. 

 

3

 Information on division/office variances reflects variances in both the Corporate Operating and Investment Budgets. 
FDIC CFO REPORT TO THE BOARD – Second Quarter 2009

Fund Financial Results ($ in Millions) 

12

Balance Sheet

Quarterly Year-Over-Year

Jun-09 Mar-09 Change Jun-08 Change

Cash & cash equivalents - unrestricted $ 1,636 3,633 $ 1,997 $ 9,257 $ $ (5,624)

Cash & cash equivalents - restricted - systemic risk 6,086 7,360 1,274 - 7,360 

Investment in U.S. Treasury obligations, net 24,909 18,019 43,218 (6,890) (25,199)

Preferred stock - systemic risk 3,025 3,025 - - 3,025 

Assessments receivable, net 2,550 9,048 6,498 627 8,421 

Receivable, net - systemic risk 683 1,303 620 - 1,303 

Interest receivable on investments and other assets, net 342 302 695 (40) (393)

Receivables from resolutions, net 18,145 21,729 3,584 2,179 19,550 

Property, buildings and other capitalized assets, net 372 368 355 (4) 13 

Total Assets $ 57,748 64,787 $ 7,039 $ 56,331 $ 8,456 $ 

Accounts payable and other liabilities 121 753 (632) 3 118

Liabilities due to resolutions ($763M-TLGP's liability) 11,091 5,420 5,671 90 11,001

Guarantee obligations - systemic risk 10,032 8,396 1,636 - 10,032

Postretirement benefit liability 114 114 0 116 (2)

Contingent Liabilities: future failures 31,968 28,459 3,509 10,590 21,378

Contingent Liabillties: systemic risk 893 1,399 (506) 893 -

Contingent Liabilities: litigation losses & other 200 200 0 200 0

Total Liabilities $ 44,741 54,419 $ 9,678 11,114 43,305

FYI: Unrealized gain on available-for-sale securities, net 1,919 962 2,045 (957) (1,083)

FYI: Unrealized postretirement benefit gain 25 25 - 19 6 

FUND BALANCE $ 13,007 10,368 $ (2,639) $ 45,217 $ (34,849) $ 

Income Statement 

Quarterly Year-Over-Year

Jun-09 Mar-09 Change Jun-08 Change

Assessments earned $ 2,615 11,710 $ 9,095 $ 1,088 $ 10,622 $ 

Systemic risk revenue 34 327 293 - 327 

Interest earned on investment securities 212 452 240 1,269 (817)

Realized gain on sale of securities 136 657 521 - 657 

Other revenue 2 377 375 2 375 

Total Revenue $ 2,999 13,523 $ 10,524 $ 2,359 $ 11,164 $ 

Operating expenses (includes depreciation expense) 266 564 298 494 70 

Systemic risk expenses 34 327 293 - 327 

Provision for insurance losses 6,637 18,252 11,615 10,746 7,506 

Other expenses - - - 1 (1)

Total Expenses & Losses $ 6,937 19,143 $ 12,206 $ 11,241 $ 7,902 $ 

Net (Loss)/Income (5,620) (3,938) (1,682) 3,262 (8,882) 

Unrealized gain/(loss) on available-for-sale securities, net (1,288) (331) 1,686 (957) (2,974)

Unrealized postretirement benefit gain/(loss) - - - - - 

YTD Comprehensive (Loss)/Income $ (4,269) (6,908) $ (2,639) $ (7,196) $ 288 $ 

 

Deposit Insurance Fund

Deposit Insurance Fund

FDIC Trailing 12-month Investment Portfolio Total Returns Compared to the Designated 

Performance Benchmark

5.02%

4.06%

8.55%

9.48%

8.63%

5.45% 6.12%

3.57%

5.27%

8.86%

9.73%

11.33%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09

Rate of Return

DIF Merrill Lynch Index

DIF Fund Balance and Estimated Insured Deposits

$49 $50

$52

$13 $17

$3,891 $4,154 $4,292

$4,749 $4,831

10

15

20

25

30

35

40

45

50

55

60

12/2005 12/2006 12/2007 12/2008 3/2009

Fund Balance 

($ in Biliions)

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

Estimated Insured Deposits 

($ in Billions)

Fund Balance Estimated Insured Deposits

Reserve ratio: 1.25% 1.21% 1.22% 0.36% 0.27% 
Statements of Cash Flows 

Quarterly Year-Over-Year

Jun-09 Mar-09 Change Jun-08 Change

Net (Loss)/Income $ (5,620) $ (3,938) $ (1,682) $ (8,882) $ 3,262 

Amortization of U.S. Treasury obligations (unrestricted) 145 80 65 257 (112)

TIPS Inflation Adjustment 38 57 (19) (210) 248 

Depreciation on property and equipment 33 15 18 27 6 

Provision for insurance losses 18,252 6,637 11,615 10,746 7,506 

Unrealized gain on postretirement benefits - - - - - 

(Gain) on sale of UST obligations (658) (136) (522) - (658)

Systemic risk expenses - - - - - 

Net change in operating assets and liabilities (13,610) (999) (12,611) (1,934) (11,676)

Net Cash Provided by (Used by) Operating Activities $ (1,420) $ 1,716 $ (3,136) $ 4 $ (1,424)

Investments matured and sold 9,027 2,619 6,408 5,009 4,018 

Investments purchased (includes purchase of property and 

equipment) (2) (2) - (1) (1)

Net Cash Provided by (Used by) Investing Activities $ 9,025 $ 2,617 $ 6,408 $ 5,008 $ 4,017 

Net Increase (Decrease) in Cash and Cash Equivalents 7,605 4,334 3,271 5,012 2,593 

Cash and Cash Equivalents at beginning of year 3,388 3,388 - 4,245 (857)

 Unrestricted Cash and Cash Equivalents - Ending 3,633 1,636 1,997 9,257 (5,624)

 Restricted Cash and Cash Equivalents - Ending 7,360 6,086 1,274 - 7,360 

Cash and Cash Equivalents - Ending $ 10,993 $ 7,722 $ 3,271 $ 9,257 $ 1,736 

Selected Financial Data

Quarterly Year-Over-Year

Jun-09 Mar-09 Change Jun-08 Change

Cash and cash equivalents $ 3,467 3,459 $ $ 3,444 (8) $ 15 $ 

Accumulated deficit, net (123,955) (123,944) (11) (123,811) (144)

Resolution equity 3,498 3,487 3,458 (11) 29 

Total revenue 5 7 2 43 (36)

Operating expenses 1 3 2 2 1 

Goodwill/Guarini litigation expenses - - - 77 (77)

Net Income/(Loss) $ 4 (7) $ (11) $ (41) $ 34 $ 

Deposit Insurance Fund

FSLIC Resolution Fund

 Receivership Selected Statistics June 2009 vs. June 2008

Year-to-Date ($ in millions) Jun-09 Jun-08 Change Jun-09 Jun-08 Change Jun-09 Jun-08 Change

Total Receiverships 85 22 63 8 9 (1) 93 31 62 

Assets in Liquidation 26,467 $ 2,343 $ 24,124 $ 33 $ 34 $ (1) $ 26,500 $ 2,377 $ 24,123 $ 

Collections 4,297 $ 221 $ 4,076 $ 5 $ 4 $ 1 $ 4,302 $ 225 $ 4,077 $ 

Dividends Paid - Cash 3,078 $ 232 $ 2,846 $ - $ 4 $ (4) $ 3,078 $ 236 $ 2,842 $ 

DIF FRF ALL FUNDS

 DIF Receiverships with Transaction Account Guarantee Program Claims as of 6/30/2009

$1,600

$0.4 $3 $37 $27

$191

$67 $67 $32 $65 $12 $14 $7

$682

$23 $0.2 $21 $1 0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

10/2008 11/2008 12/2008 1/2009 2/2009 3/2009 4/2009 5/2009 6/2009

$ in Millions

TAGP Claims TAGP Estimated Losses

13

Fund Financial Results - continued ($ in Millions ) 

Total TAGP Claims = $2.1 billion

Total TAGP Estimated Losses = $792.2M
14

6/30/09 12/31/08 Change

Par Value $20,595 $25,496 ($4,901)

Amortized Cost $20,790 $26,580 ($5,790)

Market Value $21,751 $28,830 ($7,079)

Primary Reserve 1 $22,043 $29,227 ($7,184)

Primary Reserve % of Total Portfolio 100.0% 100.0% 0.0%

Year-to-Date Total Return (Portfolio) (0.681%) 8.550% not applicable

Year-to-Date Total Return (Benchmark) 2 (2.435%) 11.334% not applicable

Total Return Variance (in basis points) 175.4 (278.4) not applicable

Yield-to-Maturity 3 3.89% 4.59% (0.70%)

Weighted Average Maturity (in years) 1.84 3.34 (1.50)

Effective Duration (in years) 4

 Total Portfolio 1.65 2.85 (1.20)

 Available-for-Sale Securities 1.99 2.94 (0.95)

 Held-to-Maturity Securities 5 not applicable not applicable

6/30/09 12/31/08 Change

Debt Guarantee Program

 Book Value 6 $7,536 $2,425 $5,111

 Yield-to-Maturity 0.10% 0.11% (0.01%)

 Weighted Average Maturity overnight overnight no change

Transaction Account Guarantee Program

 Book Value 6 $0 $0 $0

 Yield-to-Maturity not applicable not applicable not applicable

 Weighted Average Maturity not applicable not applicable not applicable

Other Systemic Risk Reserves

 Book Value 6 $81 $0 $81

 Yield-to-Maturity 0.10% not applicable not applicable

 Weighted Average Maturity overnight not applicable not applicable

FRF-FSLIC

 Book Value 6 $3,317 $3,325 ($8)

 Yield-to-Maturity 0.10% 0.11% (0.01%)

 Weighted Average Maturity overnight overnight no change

6/30/09 12/31/08 Change

Book Value 7 $6,163 $3,447 $2,716

Yield-to-Maturity 0.40% 1.21% (0.81%)

Weighted Average Maturity (in days) 30 23 7

National Liquidation Fund (NLF) Investment Portfolio Summary

(Dollar Values in Millions)

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.

7

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

Summary of Other Corporate Investment Portfolios

(Dollar Values in Millions)

6

 Due to the current short-term nature of these portfolios, each of their respective Par, Book, and Market Values are identical for 

reporting purposes.

3

 The Yield-to-Maturity includes the potential yield of Treasury Inflation-Protected Securities (TIPS), which assumes an average

1.1% 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.

Deposit Insurance Fund Portfolio Summary

(Dollar Values in Millions)

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.
15

Invest all proceeds from deposit insurance assessments, Temporary Liquidity Guarantee Program 

surcharges, 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.

No changes in strategy.

Strategy as of 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. 

Strategy Changes for 3rd Quarter 2009

No changes in strategy.

NATIONAL LIQUIDATION FUND

Maintain an overnight deposit balance within a target range of $15 million to $25 million.

Strategically invest the remaining funds in the zero- to 12-month maturity sector.

No changes in strategy.

Strategy Changes for 3rd Quarter 2009

Investment Strategies

Strategy as of 2nd Quarter 2009

Strategy as of 2nd Quarter 2009

DEPOSIT INSURANCE FUND

Strategy Changes for 3rd Quarter 2009

DEBT GUARANTEE PROGRAM
16

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. 

YTD YTD % of 

Major Expense Category Budget Expenditures Budget Used Variance

Corporate Operating Budget 

Ongoing Operations

Salaries & Compensation $387,371 $376,526 97% ($10,845)

Outside Services - Personnel 78,332 84,674 108% 6,342

Travel 36,982 37,205 101% 223

Buildings 31,216 27,984 90% (3,232)

Equipment 25,899 25,071 97% (828)

Outside Services - Other 10,990 8,947 81% (2,043)

Other Expenses 6,680 4,639 69% (2,041)

Total Ongoing Operations $577,470 $565,046 98% ($12,424)

Receivership Funding

Salaries & Compensation $55,763 $29,395 53% ($26,368)

Outside Services - Personnel 258,290 210,694 82% (47,596)

Travel 29,500 9,471 32% (20,029)

Buildings 26,156 26,476 101% 320

Equipment 15,235 13,226 87% (2,009)

Outside Services - Other 13,940 5,199 37% (8,741)

Other Expenses 25,321 13,719 54% (11,602)

Total Receivership Funding $424,205 $308,180 73% ($116,025)

Total Corporate Operating Budget $1,001,675 $873,226 87% ($128,449)

Investment Budget 1 $3,029 $2,588 85% ($441)

Grand Total $1,004,704 $875,814 87% ($128,890)

(Dollars in Thousands)

Executive Summary of 2009 Budget and Expenditures

by Major Expense Category

Through June 30, 2009
17

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, Deputy to the Chairman and Chief Financial Officer, and Deputy to the Chairman for External Affairs.

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. 

YTD YTD % of 

Division/Office Budget Expenditures Budget Used Variance

 Corporate Operating Budget 

 Supervision & Consumer Protection $240,376 $228,213 95% ($12,163)

 Information Technology 109,220 114,089 104% 4,869

 Administration 106,770 91,855 86% (14,915)

 Resolutions & Receiverships 374,296 301,945 81% (72,351)

 Legal 88,082 60,382 69% (27,700)

 Insurance & Research 17,741 16,840 95% (901)

 Finance 15,581 13,939 89% (1,642)

 Inspector General 13,578 11,882 88% (1,696)

 Corporate University 18,637 19,513 105% 876

 Executive Support 1 12,987 11,056 85% (1,931)

 Executive Offices 2 4,407 3,512 80% (895)

 Total, Corporate Operating Budget $1,001,675 $873,226 87% ($128,449)

 Investment Budget 3

 Information Technology $2,617 $2,277 87% ($340)

 Resolutions & Receiverships 153 95 62% (58)

 Insurance & Research 259 216 83% (43)

 Total, Investment Budget 3 $3,029 $2,588 85% ($441)

 Combined Division/Office Budgets

 Supervision & Consumer Protection $240,376 $228,213 95% ($12,163)

 Information Technology 111,837 116,366 104% 4,529

 Administration 106,770 91,855 86% (14,915)

 Resolutions & Receiverships 374,449 302,040 81% (72,409)

 Legal 88,082 60,382 69% (27,700)

 Insurance & Research 18,000 17,056 95% (944)

 Finance 15,581 13,939 89% (1,642)

 Inspector General 13,578 11,882 88% (1,696)

 Corporate University 18,637 19,513 105% 876

 Executive Support 1 12,987 11,056 85% (1,931)

 Executive Offices 2 4,407 3,512 80% (895)

 Grand Total $1,004,704 $875,814 87% ($128,890)

Executive Summary of 2009 Budget and Expenditures

by Budget Component and Division/Office

Through June 30, 2009

(Dollars in Thousands)