Federal Deposit Insurance Corporation

55017th Street, N.W., Washington D.C. 20429-9990 Deputy to the Chairman and CFO

May 12, 2016

MEMORANDUM TO: The Board of Directors

FROM: Steven O. App

Deputy to the h irman and

Chief Financial Officer

Craig R. Jarvill

Director, Division of Finance

SUBJECT: First Quarter 2016 CFO Report to the Board

The attached report highlights the Corporation's financial activities and results for the quarter ended

March 31, 2016.

Executive Summary

• During the first quarter of 2016, the Deposit Insurance Fund (DIF) balance increased by $2.5

billion, from $72.6 billion to $75.1 billion. This quarterly increase was primarily due to $2.3

billion of assessment revenue, a $412 million unrealized gain on U.S. Treasury investments,

and $147 million of interest on U.S. Treasury obligations, partially offset by $415 million in

operating expenses.

• During the first quarter of 2016, the FDIC was named receiver for 1 failed institution. North

Milwaukee State Bank, which failed on March 11, 2016, had assets at time of failure of $64

million with an estimated loss to the DIF of $10 million. The corporate cash outlay during the

first quarter for this failure was approximately $10 million.

• Through March 31, 2016, overall FDIC Operating Budget expenditures were below budget by

11 percent ($57 million). This variance was primarily the result of vacancies in budgeted

positions and lower-than-budgeted spending for equipment and contractual services in the

Ongoing Operations component of the budget and contractual services in the Receivership

Funding component of the budget.
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I. Corporate Fund Financial Results (See pages 6– 7 for detailed data and charts.) 

Deposit Insurance Fund 

 For the first quarter of 2016, the DIF’s comprehensive income totaled $2.5 billion, equivalent to 

the amount reported in the same period last year. Although assessment revenue and 

earnings (interest and net unrealized gains) on U.S. Treasury obligations were higher in 2016 

than 2015 ($139 million and $268 million, respectively), there were smaller negative provision 

for losses in 2016 compared to last year (negative $43 million in 2016 vs. negative $426 

million in 2015). 

 

 The provision for insurance losses was a negative $43 million for the first quarter of 2016. The 

negative provision primarily resulted from a $97 million decrease in the estimated losses for 

institutions that failed in current and prior years, partially offset by a $48 million increase in the 

estimated losses for future failures. 

Assessments

 During March, the DIF recognized assessment revenue of $2.3 billion. Of this amount, $2.2 

billion represented the estimate for first quarter 2016 insurance coverage. Additionally, the DIF 

recognized an adjustment of $90 million that increased assessment revenue. This adjustment 

consisted of $36 million primarily due to prior period amendments from compliance review 

activity and a $54 million increase to the estimate for fourth quarter 2015 insurance coverage 

recorded at December 31, 2015. The latter adjustment was primarily due to higher than 

estimated assessment base and rates for large banks. 

 On March 30, 2016, the FDIC collected $2.3 billion in DIF assessments for fourth quarter 2015 

insurance coverage. 

II. Investment Results (See pages 8 -9 for detailed data and charts.)

DIF Investment Portfolio 

 On March 31, 2016, the total liquidity (also total market value) of the DIF investment portfolio 

stood at $67.8 billion, up $4.0 billion from its December 31, 2015, balance of $63.7 billion. 

During the quarter, interest revenue, receivership dividends, and deposit insurance 

assessment collections exceeded resolution-related outlays and operating expenses. 

 On March 31, 2016, the DIF investment portfolio’s yield was 0.94 percent, little changed from 

its December 31, 2015, yield. Although the new Treasury securities purchased during the 

quarter generally had higher yields than the maturing securities’ yields, the portfolio had a 

larger balance of low yielding overnight investments at the end of the first quarter, thus 

temporarily bringing down the overall portfolio yield. 

 In accordance with the approved first quarter 2016 DIF portfolio investment strategy, staff 

purchased a total of nine short- to intermediate-maturity conventional Treasury securities, all 

designated as available-for-sale. The nine securities had a total par value of $6.8 billion, a 

weighted average yield of 0.71% percent, and a weighted average maturity of 1.00 years. 
3

 

III. Budget Results (See pages 10 – 11 for detailed data.) 

 

Approved Budget Modifications 

The 2016 Budget Resolution delegated to the Chief Financial Officer (CFO) and selected other 

officials the authority to make certain modifications to the 2016 FDIC Operating Budget. The 

following budget reallocations were approved during the first quarter in accordance with the 

authority delegated by the Board of Directors. 

 In January 2016, the organizations under the Chief Information Officer (CIO), the Office of 

Minority and Women Inclusion, the Division of Risk Management Supervision (RMS), and 

the Office of the Ombudsman made minor reallocations of budget authority among major 

expense categories within their approved budgets. The largest reallocations were made 

by the CIO organizations (the Division of Information Technology (DIT), CIO Council, and 

Information Security and Privacy Staff), although those reallocations totaled only 0.4 

percent of their combined 2016 Ongoing Operations budgets. The CIO organizations 

reprogrammed about $1.2 million in budget authority between the Equipment and Outside 

Services-Personnel expense categories of their budgets to better align budget authority 

with planned information technology (IT) and IT security related activities for the year. 

None of the budget realignments increased or decreased the total Board-approved 

budget or the Ongoing Operations or Receivership Funding components of their 

division/office budgets. 

 In March 2016, in conjunction with a reduction in authorized staffing (see below), the CFO 

approved the realignment of $320,054 from the RMS Salaries and Compensation budget 

to the Corporate Unassigned contingency reserve to reflect the reduction of RMS’s 2016 

staffing authorization. Following this budget reallocation, the amounts remaining available 

within the Corporate Unassigned budgets for the Ongoing Operations and the 

Receivership Funding budget components were $18,320,054 and $27,407,582, 

respectively.

Approved Staffing Modifications 

The 2016 Budget Resolution delegated to the CFO the authority to modify approved 2016 

staffing authorizations for divisions and offices, as long as those modifications did not increase 

the total approved 2016 FDIC Operating Budget. The following change was approved by the 

CFO in accordance with the authority delegated to him by the Board of Directors: 

 In February 2016, the CFO approved a reduction of 49 authorized non-permanent field 

examination positions and one non-permanent Supervisory Examiner position in RMS to 

reflect the projected reduction in examination workload resulting from a statutory change in 

early December 2015 and the Board’s subsequent adoption of a rule implementing 

extended examination cycles for highly-rated institutions with $500 million to $1.0 billion in 

assets. This reduction in authorized non-permanent examination staffing was partially 

offset by the addition of seven non-permanent non-examination positions in RMS’s 

Washington office to provide for an orderly transition of work from non-permanent to 

permanent staff during 2016. 
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Spending Variances 

Significant spending variances by major expense category and division/office are discussed 

below. Significant spending variances for the three months ending March 31, 2016, are 

defined as those that either (1) exceed the YTD budget by more than $3 million and represent 

more than five percent of a major expense category or total division/office budget; or (2) are 

under the YTD budget for a major expense category or division/office by an amount that 

exceeds $5 million and represents more than ten percent of the major expense category or 

total division/office budget. 

Significant Spending Variances by Major Expense Category 

Ongoing Operations 

There was a significant spending variance during the first quarter in two major expense 

categories of the Ongoing Operations component of the 2016 FDIC Operating Budget: 

 Outside Services-Personnel expenditures were $6 million, or 12 percent, less-thanbudgeted. Most of this underspending occurred in the Division of Administration (DOA), 

the Division of Depositor and Consumer Protection (DCP), and the Division of Resolutions 

and Receiverships (DRR). DOA spent $3 million less than budgeted for contractual 

support in the first quarter, largely due to lower-than-expected expenses for administrative 

services due to weather-related closures and vacant contractor positions; delays in 

completing the salary structure review and related pay, performance, and competency 

modeling projects; and slower-than-budgeted spending on security related initiatives. DCP 

spent $1 million less-than-budgeted, primarily due to delays in beginning work on several 

enhancements to Money Smart products and to delays in interagency billing for the FDIC’s 

share of the costs for an interagency project to upgrade the Home Mortgage Disclosure 

Act (HMDA) data collection infrastructure and for 2016 HMDA data collection services. 

DRR spent $1 million less-than-budgeted, due largely to continuing delays in contracting 

for advisory services in support of DRR’s Title I and Title II resolution planning 

responsibilities and lower-than-projected spending for IT systems development and 

support.

 Equipment expenditures were $5 million, or 30 percent, less-than-budgeted. DIT spent $4 

million less-than-budgeted, primarily because hardware purchases from its technical 

refresh allowance were not made as quickly as anticipated. 

Receivership Funding 

The Receivership Funding component of the 2016 FDIC 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. 
5

There was a significant spending variance in only one of the seven major expense categories 

during the first quarter in the Receivership Funding component of the 2016 FDIC Operating 

Budget: 

 Outside Services-Personnel expenditures were $25 million, or 37 percent, less-thanbudgeted. This variance was primarily attributable to DRR, which spent $21 million lessthan-budgeted. This reflected the fact that there was only one small bank closing that 

required less contractual support than was budgeted for first-quarter resolutions, and only 

minimal expenses were incurred for loan servicing and asset management for the 439 

active receiverships. 

Significant Spending Variances by Division/Office1

Only two organizations had significant spending variances through the end of the first quarter: 

 DRR spent $26 million, or 29 percent, less-than-budgeted, mostly due to less-thanbudgeted spending for resolutions and receivership workload for the reasons described 

above. 

 The Legal Division spent $6 million, or 11 percent, less-than-budgeted. Approximately $5 

million of this variance was in the Receivership Funding budget component due largely to 

lower-than-projected outside counsel expenses for receivership-related litigation. It also 

had a $1 million variance in its Ongoing Operations budget component due to slower-thanprojected hiring to fill vacant positions. 

 

1

 Information on division/office variances reflects variances in the Corporate Operating Budget. 
FDIC CFO REPORT TO THE BOARD – First Quarter 2016 

Fund Financial Results ($ in Millions) 

6

Balance Sheet

Unaudited Audited Quarterly Unaudited Year-Over-Year

Mar-16 Dec-15 Change Mar-15 Change

Cash and cash equivalents 3,519 $ 877 $ 2,642 $ 3,729 $ (210) $ 

Investment in U.S. Treasury obligations 63,833 62,497 1,336 50,591 13,242 

Assessments receivable, net 2,238 2,172 66 2,051 187 

Interest receivable on investments and other assets, net 474 418 56 373 101 

Receivables from resolutions, net 9,638 11,578 (1,940) 17,258 (7,620) 

Property and equipment, net 370 378 (8) 365 5 

Total Assets $ 77,920 80,072 $ 2,152 $ 74,367 $ 5,705 $ 

Accounts payable and other liabilities 217 273 (56) 243 (26) 

Liabilities due to resolutions 4,059 4,419 (360) 7,868 (3,809) 

Postretirement benefit liability 233 233 - 243 (10) 

Contingent liability for anticipated failures 443 395 48 717 (274) 

Contingent liability for litigation losses 0 0 - 0 - 

Total Liabilities $ 5,320 4,952 $ (368) $ 9,071 $ (4,119) $ 

FYI: Unrealized gain (loss) on U.S. Treasury investments, net 403 (9) 412 282 121 

FYI: Unrealized postretirement benefit (loss) gain (34) (34) - (58) 24 

Fund Balance $ 72,600 75,120 $ 2,520 $ 65,296 $ 9,824 $ 

Deposit Insurance Fund

The estimated recoveries from 

assets held by receiverships 

and estimated payments 

related to shared-loss covered 

assets and other liabilities are 

used to derive the loss 

allowance on the receivables 

from resolutions.

The $23 million adjustment 

resulted from greater-thananticipated collections from a 

receivership’s investment in a 

structured transaction.

The $46 million net adjustment 

to the receiverships’ sharedloss liability primarily resulted 

from higher than estimated 

final payments on commercial 

shared-loss agreements (SLA) 

where loss coverage expired, 

net of savings on early SLA 

terminations. 

The $6 million adjustment 

resulted from a $9 million 

increase in estimated rep & 

warranty liabilities, net of a $3 

million decline in estimated 

litigation liabilities.
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Fund Financial Results - continued ($ in Millions) 

$ in millions

Mar-16 Mar-15 Change Mar-16 Mar-15 Change Mar-16 Mar-15 Change

Total Receiverships 439 483 (44) 0 0 - 439 483 (44) 

Assets in Liquidation 4,433 $ 7,289 $ (2,856) $ 2 $ 5 $ (3) $ 4,435 $ 7,294 $ (2,859) $ 

YTD Collections 372 $ 1,365 $ (993) $ 1 $ - $ 1 $ 373 $ 1,365 $ (992) $ 

YTD Dividend/Other Pymts - Cash 1,789 $ 2,170 $ (381) $ - $ - $ - $ 1,789 $ 2,170 $ (381) $ 

DIF FRF ALL FUNDS

Income Statement (year-to-date)

Unaudited Audited Unaudited Year-Over-Year

Mar-16 Dec-15 Mar-15 Change

Assessments 2,328 $ 8,847 $ 2,189 $ 139 $ 

Interest on U.S. Treasury obligations 147 422 60 87 

Other revenue 5 34 6 (1) 

Total Revenue $ 9,303 2,480 $ 2,255 $ 225 $ 

Operating expenses 415 1,687 396 19 

Provision for insurance losses (43) (2,251) (426) 383 

Insurance and other expenses 0 11 0 - 

Total Expenses and Losses $ (553) 372 $ (30) $ 402 $ 

Net Income 9,856 2,108 2,285 (177) 

Unrealized gain (loss) on U.S. Treasury investments, net 412 (60) 231 181 

Unrealized postretirement benefit gain (loss) - 24 - - 

Comprehensive Income $ 9,820 2,520 $ 2,516 $ 4 $ 

Deposit Insurance Fund

DIF interest revenue was over twice as 

high in the first quarter of 2016 ($147 

million) as compared to the same period 

in 2015 ($60 million). 

A combination of factors led to this 

increase: (1) the Federal Reserve 

increased the Fed Funds Target Rate, 

resulting in an increase in the average 

overnight investment interest rate (from 

0.02% in the first quarter of 2015 to 

0.24% in the same period of 2016); (2) 

higher interest rates on new long-term 

investments obtained as older long-term 

investments mature; (3) steady growth 

in the investment portfolio balance; and 

(4) the Treasury Inflation Protected 

Securities (TIPS) inflation compensation 

was less negative in the first quarter of 

2016 (negative $2.895 million) as 

compared to the same period in 2015 

(negative $26.643 million).

FSLIC Resolution Fund

Selected Financial Data Unaudited Audited Quarterly Unaudited Year-Over-Year

Mar-16 Dec-15 Change Mar-15 Change

Cash and cash equivalents 872 $ 871 $ 1 $ 872 $ - $ 

Accumulated deficit (124,617) (124,618) 1 (124,460) (157) 

Total resolution equity 872 871 1 872 - 

Total revenue 1 3 1 - 

Operating expenses 1 3 0 1 

Provision for losses (3) 0 0 (3) 

Other expenses 2 0 0 2 

Goodwill litigation expenses - 157 - - 

Net Income (Loss) 1 $ (157) $ 1 $ - $ 

Receivership Selected Statistics March 2016 vs. March 2015
8

3/31/16 12/31/15 Change

Par Value $66,541 $62,973 $3,568

Amortized Cost $66,939 $63,368 $3,571

Total Market Value (including accrued interest) $67,774 $63,737 $4,037

Primary Reserve 1 $67,774 $63,737 $4,037

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

Yield-to-Maturity 2 0.94% 0.94% 0.00%

Weighted Average Maturity (in years) 1.44 1.65 -0.21

Effective Duration (in years)

 Total Portfolio 1.41 1.62 -0.21

 Available-for-Sale Securities 1.49 1.64 -0.15

 Held-to-Maturity Securities 3 not applicable not applicable not applicable

3/31/16 12/31/15 Change

FRF-FSLIC

 Book Value 4 $828 $828 $0

 Yield-to-Maturity 0.14% 0.08% 0.06%

 Weighted Average Maturity overnight overnight no change

3/31/16 12/31/15 Change

Book Value 5 $8,969 $10,508 ($1,539)

Effective Annual Yield 0.42% 0.30% 0.12%

Weighted Average Maturity (in days) 105 90 15

5

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

Summary of Other Corporate Investment Portfolios

(Dollar Values in Millions)

4

 Due to the current short-term nature of this portfolio, its respective Par, Book, and Market Values are identical for reporting 

purposes.

2

 The Yield-to-Maturity includes the potential yield of Treasury Inflation-Protected Securities (TIPS), which assumes an average 1.8% 

annual increase in the CPI over the remaining life of each TIPS.

Deposit Insurance Fund Portfolio Summary

(Dollar Values in Millions)

1

 Primary Reserve is the total market value (including accrued interest) of overnight investments, all available-for-sale (AFS) 

securities, and held-to-maturity (HTM) securities maturing within three months.

National Liquidation Fund (NLF) Investment Portfolio Summary

(Dollar Values in Millions)

3

 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 positive intent and ability to hold its HTM securities until their maturity dates.
9

DEPOSIT INSURANCE FUND

Purchase up to $10 billion (par value) of Treasury securities with maturity dates 

between June 30, 2016, and June 30, 2021, subject to the following additional 

provisions: all newly purchased securities will be designated as available-for-sale; 

and no more than $2 billion (adjusted par value) of such securities shall consist of 

Treasury Inflation-Protected Securities.

Purchase up to $14 billion (par value) of Treasury securities with maturity dates 

between September 30, 2016, and September 30, 2021, subject to the following 

additional provisions: all newly purchased securities will be designated as availablefor-sale; and no more than $2 billion (adjusted par value) of such securities shall 

consist of Treasury Inflation-Protected Securities. 

NATIONAL LIQUIDATION FUND

Maintain an overnight deposit target floor balance within a range of $100 million to 

$300 million.

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

No strategy changes for the second quarter of 2016.

Strategy Changes for the 2nd Quarter 2016

Investment Strategies

Strategy for the 1st Quarter 2016

Strategy for the 1st Quarter 2016

Strategy Changes for the 2nd Quarter 2016
10

Executive Summary of 2016 Budget and Expenditures

by Major Expense Category

Through March 31, 2016

(Dollars in Thousands)

Annual YTD YTD % of YTD YTD

Major Expense Category Budget Budget Expenditures Budget Used Variance

FDIC Operating Budget 

Ongoing Operations

Salaries & Compensation $1,254,695 $309,781 $297,884 96% ($11,897)

Outside Services - Personnel 248,758 53,583 47,418 88% (6,165)

Travel 98,696 23,903 22,165 93% (1,738)

Buildings 95,422 24,113 23,287 97% (826)

Equipment 81,935 16,695 11,657 70% (5,038)

Outside Services - Other 15,739 4,233 2,445 58% (1,788)

Other Expenses 15,456 3,699 3,185 86% (514)

Total Ongoing Operations $1,810,701 $436,007 $408,041 94% ($27,966)

Receivership Funding

Salaries & Compensation $61,080 $17,835 $14,997 84% ($2,838)

Outside Services - Personnel 296,955 67,034 42,327 63% (24,707)

Travel 8,207 2,047 729 36% (1,318)

Buildings 14,602 3,593 3,320 92% (273)

Equipment 1,452 291 990 341% 699 

Outside Services - Other 1,900 351 247 70% (104)

Other Expenses 15,805 3,940 3,521 89% (419)

Total Receivership Funding $400,000 $95,091 $66,131 70% ($28,960)

Total FDIC Operating Budget $2,210,701 $531,098 $474,172 89% ($56,926)
11

Executive Summary of 2016 Budget and Expenditures

by Budget Component and Division/Office

Through March 31, 2016

(Dollars in Thousands)

Annual YTD YTD % of YTD YTD

Division/Office Budget Budget Expenditures Budget Used Variance

FDIC Operating Budget 

Risk Management Supervision $595,681 $146,193 $140,156 96% ($6,037)

Resolutions & Receiverships 358,618 92,509 66,081 71% (26,428)

Administration 268,848 67,046 60,808 91% (6,239)

Legal 237,781 59,305 52,827 89% (6,478)

Information Technology 216,584 49,875 45,053 90% (4,822)

Depositor & Consumer Protection 180,155 44,749 41,673 93% (3,075)

Insurance & Research 48,211 11,658 12,002 103% 344 

Finance 40,028 10,099 9,619 95% (480)

CIO Council 51,791 10,976 9,588 87% (1,387)

Inspector General 34,153 8,538 7,694 90% (844)

Information Security & Privacy Staff 33,813 7,396 7,335 99% (61)

Executive Support 1 26,539 6,362 5,657 89% (705)

Corporate University - Corporate 21,498 5,170 5,350 103% 180 

Complex Financial Institutions 21,285 4,530 4,381 97% (149)

Corporate University - CEP 18,597 3,947 3,516 89% (431)

Executive Offices 2 11,391 2,745 2,431 89% (314)

Corporate Unassigned 45,728 0 0 N/A 0 

Total FDIC Operating Budget $2,210,701 $531,098 $474,172 89% ($56,926)

1) Executive Support includes the Offices of Minority and Women Inclusion, Communications, Ombudsman, 

Legislative Affairs, Corporate Risk Management, and Financial Institution Adjudication. 

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 Chief Information 

Officer.