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 
2

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. 

Trends and Outlook

Financial Results Comments 

I. Financial 

Statements 

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. 
3

Trends and Outlook

Financial Results Comments 

II. Investments • 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. 
4

Trends and Outlook

Financial Results Comments 

III. Budget • 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. 
5

• 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. 
6

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 
7

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: 
8

• 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 
9

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. 
FDIC CFO REPORT TO THE BOARD – Third Quarter 2008

Fund Financial Results ($ in Millions) - Unaudited

10

Balance Sheet

 

Sep-08 Jun-08

Cash & cash equivalents $ 854 $ 9,257 $ (8,403) $ 2,854 $ (2,000)

Investment in U.S. Treasury obligations, net 32,559 43,218 (10,659) 47,933 (15,374)

Assessments receivable, net 890 627 263 173 717 

Interest receivable on investments and other assets, net 472 695 (223) 706 (234)

Receivables from resolutions, net 14,414 2,179 12,235 2,057 12,357 

Property, buildings and other capitalized assets, net 364 355 9 357 7 

Total Assets $ 49,553 $ 56,331 $ (6,778) $ 54,080 $ (4,527)

Accounts payable and other liabilities 2,923 208 2,715 1,942 981 

Postretirement benefit liability 116 116 0 114 2 

Contingent Liabilities: future failures 11,726 10,590 1,136 70 11,656 

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

Total Liabilities $ 14,965 $ 11,114 $ 3,851 $ 2,326 $ 12,639 

FYI: Unrealized gain on available-for-sale securities, net 1,699 2,045 (346) 221 1,478 

FYI: Unrealized postretirement benefit gain 19 19 0 22 (3)

FUND BALANCE $ 34,588 $ 45,217 $ (10,629) $ 51,754 $ (17,166)

Income Statement 

 

Sep-08 Jun-08

Assessments earned $ 1,969 $ 1,088 $ 881 $ 404 $ 1,565 

Interest earned on investment securities 1,795 1,269 526 1,955 (160)

Other revenue 18 2 16 11 7 

Realized gain on sale of investments 473 0 473 0 473 

Total Revenue $ 4,255 $ 2,359 $ 1,896 $ 2,370 $ 1,885 

Operating expenses (includes depreciation expense) 743 494 249 730 13 

Provision for insurance losses 22,676 10,746 11,930 56 22,620 

Other expenses 1 1 0 2 (1)

Total Expenses & Losses $ 23,420 $ 11,241 $ 12,179 $ 788 $ 22,632 

Net (Loss)/Income $ (19,165) $ (8,882) $ (10,283) $ 1,582 $ (20,747)

Unrealized gain/(loss) on available-for-sale securities, net 1,340 1,686 (346) (13) 1,353 

Unrealized postretirement benefit gain/(loss) 0 0 0 20 (20)

YTD Comprehensive (Loss)/Income $ (17,825) $ (7,196) $ (10,629) $ 1,589 $ (19,414)

 

Deposit Insurance Fund

Deposit Insurance Fund

Year-Over-Year

Change

Quarterly 

Quarterly

Change

Sep-07 Change

Sep-07

 Year-Over-Year

Change

$1,148

$1,075 $936 $982 $1,014

$259

$456

$560

$768 $731

$619

$890

$454

$251 $168

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

3rd Qtr 2007 4th Qtr 2007 1st Qtr 2008 2nd Qtr 2008 3rd Qtr 2008

$ in Millions

Gross Assessment Revenue Credits Used Net Assessment Revenue

FDIC Investment Portfolio as of June 30, 2008 

 ($ in billions)

Overnight 

Investments, 

$9.3, 17%

Available-forSale 

Securities, 

$43.9, 83%

Total market value = 

$53 billion

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.

FDIC Investment Portfolio as of September 30, 2008 

 ($ in billions)

Overnight 

Investments, 

0.851, 3%

Available-forSale 

Securities, 

$33.0, 97%

Total market value =

$34 billion
11

Fund Financial Results - continued ($ in Millions ) - Unaudited

$20.8

Statements of Cash Flows 

 

Sep-08 Jun-08

Net (Loss)/Income $ (19,165) $ (8,882) $ (10,283) $ 1,582 $ (20,747)

Amortization of U.S. Treasury obligations (unrestricted) 370 257 113 431 (61)

TIPS Inflation Adjustment (313) (210) (103) (286) (27)

Depreciation on property and equipment 41 27 14 40 1 

Provision for insurance losses 22,676 10,746 11,930 56 22,620 

Unrealized gain on postretirement benefits 0 0 0 20 (20)

(Gain) on sale of UST obligations (473) 0 (473) 0 (473)

Net change in operating assets and liabilities (22,308) (1,934) (20,374) 5 (22,313)

Net Cash Provided by (Used by) Operating Activities $ (19,172) $ 4 $ (19,176) $ 1,848 $ (21,020)

Investments matured and sold 15,784 5,009 10,775 6,256 9,528 

Investments purchased (includes purchase of property and 

equipment) (3) (1) (2) (8,204) 8,201 

Net Cash Provided by/(Used by) Investing Activities $ 15,781 $ 5,008 $ 10,773 $ (1,948) $ 17,729 

Net Increase (Decrease) in Cash and Cash Equivalents (3,391) 5,012 (8,403) (100) (3,291)

Cash and Cash Equivalents at beginning of year 4,245 4,245 0 2,954 1,291 

Cash and Cash Equivalents - Ending $ 854 $ 9,257 $ (8,403) $ 2,854 $ (2,000)

Selected Financial Data

 

Sep-08 Jun-08

Cash and cash equivalents $ 3,459 $ 3,444 $ 15 $ 3,764 $ (305)

Accumulated deficit, net (123,885) (123,811) (74) (123,836) (49)

Resolution equity 3,470 3,458 12 3,790 (320)

Total revenue $ 60 $ 43 $ 17 $ 150 $ (90)

Operating expenses 4 2 2 2 2 

Goodwill/Guarini litigation expenses 167 77 90 179 (12)

Net (Loss)/Income $ (115) $ (41) $ (74) $ (2) $ (113)

Deposit Insurance Fund

Change Sep-07

Quarterly Year-Over-Year

Change

Year-Over-Year

Change

FSLIC Resolution Fund

Quarterly

Change Sep-07

 Receivership Selected Statistics September 2008 vs. September 2007

Year-to-Date ($ in millions) Sep-08 Sep-07 Change Sep-08 Sep-07 Change Sep-08 Sep-07 Change

Total Receiverships 30 25 5 9 15 (6) 39 40 (1)

Assets in Liquidation 9,481 $ 2,085 $ 7,396 34 $ 32 $ 2 9,515 $ 2,117 $ 7,398

Collections 432 $ 56 $ 376 7 $ 39 $ (32) 439 $ 95 $ 344

Dividends Paid-Cash 844 $ 252 $ 592 4 $ 1 $ 3 848 $ 253 $ 595

DIF FRF ALL FUNDS

Douglass National Bank Kansas City, MO 1/25/2008 $53 $10 $6

Hume Bank Hume, MO 3/7/2008 $17 $14 $3

ANB Financial, N.A. Bentonville, AR 5/9/2008 $2,012 $1,743 $214

First Integrity Bank Staples, MN 5/30/2008 $53 $50 $2

IndyMac Bank Pasadena, CA 7/11/2008 $27,958 $14,300 $8,900

First National Bank of Nevada Reno, NV. 7/25/2008 $3,585 $2,807 $820

First Heritage Bank, N.A. Newport Beach, CA 7/25/2008 $289 $257 $42

First Priority Bank Bradenton, FL. 8/1/2008 $241 $202 $72

Columbian Bank & Trust Topeka, KS 8/22/2008 $726 $576 $62

Integrity Bank Alpharetta, GA 8/29/2008 $1,045 $934 $295

Silver State Bank Henderson, NV 9/5/2008 $1,795 $1,358 $505

Ameribank, Inc. Northfork, WV 9/19/2008 $100 $91 $42

Washington Mutual Bank Henderson, NV 9/25/2008 $298,792 $0 $0

Estimated/ 

Actual Loss Institution Name Location Date of Failure Assets at Failure Cash Outlays

2008 FDIC Bank Failures through September 30, 2008 

($ in Millions)

Douglass National Bank Kansas City, MO 1/25/2008 $53 $10 $6

Hume Bank Hume, MO 3/7/2008 $17 $14 $3

ANB Financial, N.A. Bentonville, AR 5/9/2008 $2,012 $1,743 $214

First Integrity Bank Staples, MN 5/30/2008 $53 $50 $2

IndyMac Bank Pasadena, CA 7/11/2008 $27,958 $14,300 $8,900

First National Bank of Nevada Reno, NV. 7/25/2008 $3,585 $2,807 $820

First Heritage Bank, N.A. Newport Beach, CA 7/25/2008 $289 $257 $42

First Priority Bank Bradenton, FL. 8/1/2008 $241 $202 $72

Columbian Bank & Trust Topeka, KS 8/22/2008 $726 $576 $62

Integrity Bank Alpharetta, GA 8/29/2008 $1,045 $934 $295

Silver State Bank Henderson, NV 9/5/2008 $1,795 $1,358 $505

Ameribank, Inc. Northfork, WV 9/19/2008 $100 $91 $42

Washington Mutual Bank Henderson, NV 9/25/2008 $298,792 $0 $0

Estimated/ 

Actual Loss Institution Name Location Date of Failure Assets at Failure Cash Outlays

2008 FDIC Bank Failures through September 30, 2008 

($ in Millions)
12

9/30/08 12/31/07 Change

Par Value $29,937 $47,562 ($17,625)

Amortized Cost $31,712 $50,469 ($18,757)

Market Value $33,411 $52,378 ($18,967)

Primary Reserve 1 $33,864 $14,317 $19,547

Primary Reserve % of Total Portfolio 100.0% 26.9% 73.1%

Year-to-Date Total Return (Portfolio) 4.392% 8.629% not applicable

Year-to-Date Total Return (Benchmark) 2 4.605% 8.861% not applicable

Total Return Variance (in basis points) (21.3) (23.2) not applicable

Yield-to-Maturity 3 4.71% 4.72% (0.01%)

Weighted Average Maturity (in years) 4.09 4.06 0.03

Effective Duration (in years) 4

 Total Portfolio 3.33 3.19 0.14

 Available-for-Sale Securities 3.42 1.29 2.13

 Held-to-Maturity Securities 5 not applicable 3.94

9/30/08 12/31/07 Change

Book Value 6 $2,859 $393 $2,466

Yield-to-Maturity 2.22% 4.22% (2.00%)

Weighted Average Maturity (in days) 5 19 (14)

Deposit Insurance Fund Portfolio Summary

(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.

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.

6

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

4

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

duration.

National Liquidation Fund (NLF) Investment Portfolio Summary

(Dollar Values in Millions)

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.

U.S. Treasury Security Yield Curves

-2.50%

-1.50%

-0.50%

0.50%

1.50%

2.50%

3.50%

4.50%

3

Month

6

Month

1 Year

2

Year

3

Year

4

Year

5

Year

7

Year

10

Year

09/30/08 Conventional 06/30/08 Conventional 09/30/08 TIPS 06/30/08 TIPS

Conventional 6/30/08

9/30/08

TIPS 9/30/08

6/30/08
13

 No changes in strategy.

dividends in overnight investments for potential resolution funding needs. 

Allow for investing in short-term Treasury bills in addition to overnight investments.

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

Strategy as of 3rd Quarter 2008

Strategy as of 3rd Quarter 2008

DEPOSIT INSURANCE FUND

Strategy Changes for 4th Quarter 2008

NATIONAL LIQUIDATION FUND

Invest all proceeds from assessments, maturing securities, coupon and other interest payments, and receivership
14

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. 

YTD YTD % of 

Major Expense Category Budget Expenditures Budget Used Variance

Corporate Operating Budget 

Ongoing Operations

Salaries & Compensation $510,379 $501,788 98% ($8,591)

Outside Services - Personnel 133,585 112,559 84% (21,026)

Travel 48,996 45,803 93% (3,193)

Buildings 41,391 42,123 102% 732

Equipment 30,460 33,413 110% 2,953

Outside Services - Other 17,930 16,033 89% (1,897)

Other Expenses 8,813 7,430 84% (1,383)

Total Ongoing Operations $791,554 $759,149 96% ($32,405)

Receivership Funding

Salaries & Compensation $10,767 $5,357 50% ($5,410)

Outside Services - Personnel 40,492 45,847 113% 5,355

Travel 5,106 5,493 108% 387

Buildings 5,643 3,421 61% (2,222)

Equipment 8,653 8,703 101% 50

Outside Services - Other 662 2,074 313% 1,412

Other Expenses 2,887 2,979 103% 92

Total Receivership Funding $74,210 $73,874 100% ($336)

Total Corporate Operating Budget $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)

(Dollars in Thousands)

Executive Summary of 2008 Budget and Expenditures

by Major Expense Category

Through September 30, 2008
15

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. 

YTD YTD % of 

Division/Office Budget Expenditures Budget Used Variance

 Corporate Operating Budget 

 Supervision & Consumer Protection $310,058 $307,033 99% ($3,025)

 Information Technology 151,082 148,703 98% (2,379)

 Administration 122,763 116,176 95% (6,587)

 Resolutions & Receiverships 82,116 84,921 103% 2,805

 Legal 65,620 59,599 91% (6,021)

 Insurance & Research 26,272 24,251 92% (2,021)

 Finance 22,774 21,027 92% (1,747)

 Inspector General 19,720 17,427 88% (2,293)

 Corporate University 26,290 25,515 97% (775)

 Executive Support 1 21,608 18,506 86% (3,102)

 Executive Offices 2 6,442 5,365 83% (1,077)

 Government Litigation 11,019 4,500 41% (6,519)

 Total, Corporate Operating Budget $865,764 $833,023 96% ($32,741)

 Investment Budget 3

 Information Technology $22,508 $19,531 87% ($2,977)

 Resolutions & Receiverships 70 715 1021% 645

 Insurance & Research 977 240 25% (737)

 Corporate University 236 0 0% (236)

 Total, Investment Budget 3 $23,791 $20,486 86% ($3,305)

 Combined Division/Office Budgets

 Supervision & Consumer Protection $310,058 $307,033 99% ($3,025)

 Information Technology 173,590 168,234 97% (5,356)

 Administration 122,763 116,176 95% (6,587)

 Resolutions & Receiverships 82,186 85,636 104% 3,450

 Legal 65,620 59,599 91% (6,021)

 Insurance & Research 27,249 24,491 90% (2,758)

 Finance 22,774 21,027 92% (1,747)

 Inspector General 19,720 17,427 88% (2,293)

 Corporate University 26,526 25,515 96% (1,011)

 Executive Support 1 21,608 18,506 86% (3,102)

 Executive Offices 2 6,442 5,365 83% (1,077)

 Government Litigation 11,019 4,500 41% (6,519)

 Grand Total $889,555 $853,509 96% ($36,046)

(Dollars in Thousands)

Executive Summary of 2008 Budget and Expenditures

by Budget Component and Division/Office

Through September 30, 2008