Federal Deposit Insurance Corporation 

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

 

 February 6, 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: Fourth Quarter 2007 CFO Report to the Board 

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

December 31, 2007. 

Executive Summary

 

• The Deposit Insurance Fund (DIF) balance grew by one percent to $52.413 billion during the 

fourth quarter of 2007. DIF’s comprehensive income grew by $659 million during the fourth 

quarter of 2007, increasing the year-to-date (YTD) comprehensive income to $2.248 billion. 

Comprehensive income for the fourth quarter 2007 is primarily composed of interest earned on 

investment securities of $585 million, assessment revenue of $239 million, and an unrealized 

gain on available-for-sale (AFS) securities of $138 million, less operating expenses of $263 

million and a provision for insurance losses of $39 million. 

 

• On October 4, 2007, the Ohio Superintendent of Financial Institutions closed Miami Valley 

Bank of Lakeview, Ohio, and named the FDIC as receiver. DIF recorded a $56 million 

receivable from the receivership for the payments made by DIF to cover obligations to insured 

depositors. In addition, an allowance for loss of $3 million was recorded against the resolution 

receivable. The Miami Valley receivership retained assets of approximately $83 million. 

• For the twelve months ending December 31, 2007, total Corporate Operating and Investment 

Budget related expenditures ran below budget by 10 percent and 18 percent, respectively. The 

variance with respect to the Corporate Operating Budget expenditures was primarily the result 

of limited resolutions and receivership activity in the Receivership Funding component of the 

budget during the year. Detailed quarterly reports are provided separately to the Board by the 

Capital Investment Review Committee (CIRC) for those information technology projects that 

are included in the Investment Budget. 
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 

• During the 4th quarter of 2007, DIF’s contingent liability for anticipated 

failures increased by $54 million to $124 million at year-end 2007 due 

to the deterioration in banking industry financial conditions. Despite 

this increase, the contingent liability represents less than one quarter of 

1 percent of the fund balance. 

 

Significant challenges have confronted the banking industry in 2007 

arising from a slowdown in the housing market and rising defaults on 

subprime loans. Consequently, during 2007, the number of institutions 

on the FDIC's "Problem List" increased by 26 to 77. These institutions 

had $22.2 billion in assets as of December 31, 2007, representing a 261 

percent increase in problem assets from a year earlier. However, these 

challenges did not cause a large number of failures in 2007 – three 

FDIC-insured institutions failed with total assets of $2.3 billion and 

estimated losses of $120 million. These were the first failures since 

June 2004. 

Current market volatility may continue to hurt the performance of 

institutions with significant exposure to the residential mortgage market 

– especially those mortgage lenders that relied heavily on the “originate 

and sell” business model. However, many financial institutions entered 

2007 with strong profitability and capital levels. As of September 30, 

2007, risk-based capital ratios in the industry averaged 10.2 percent. 

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

by three percent during 2007, and totaled $50.469 billion on December 

31, 2007. At year end, the DIF’s portfolio yield was 4.72 percent, 

appearing to have dropped 17 basis points from 4.89 percent as of 

December 31, 2006. However, this decline stems from the extremely 

low, anomalous 1.25 percent overnight investment bond equivalent 

yield earned on December 31, 2007. At quarter end, overnight 

investments totaled $4.240 billion, or about 8.1 percent of the total 

portfolio as measured by market value. The overall portfolio yield 

would have been in the neighborhood of 4.93 percent had the monthend overnight investment yield reflected the much more representative 

3.96 percent average overnight investment yield earned between 

December 11, 2007 (the date of the then-most recent meeting of the 

Federal Reserve’s Federal Open Market Committee (FOMC) when it 

lowered the federal funds target rate) and December 30, 2007. This 

more representative 4.93 percent portfolio yield is four basis points 

higher than the portfolio’s yield at year-end 2006, reflecting the fact that 

during 2007, newly purchased securities had higher average yields than 

those of maturing securities. 

 
3

Trends and Outlook

Financial Results Comments 

• Treasury market yields should continue to decline and trade at 

comparatively low levels over the next several months, as many 

investors are expecting further reductions in the federal funds target rate 

and are concerned with the prospect that the U.S. economy may be 

falling into a recession. Expectations are for Treasury yields to 

gradually and modestly rise during the latter half of 2008 and into early 

2009. This, coupled with a growing DIF portfolio balance, should lead 

to increased interest revenue over the long run. Over the short run, any 

decrease in yields would add to the existing net unrealized gains on 

available-for-sale (AFS) securities. Conversely, any subsequent 

increase in yields would accelerate the decline of the existing net 

unrealized gains on AFS securities. Moreover, regardless of changes in 

yields, existing net unrealized gains will be reduced due to the passage 

of time (that is, any unrealized gains or losses vanish as AFS securities 

approach their maturity dates). 

III. Budget • Approximately $982 million was spent in the Ongoing Operations 

component of the 2007 Corporate Operating Budget, which was $51 

million (5 percent) below the budget for the twelve months ending 

December 31, 2007. The Outside Services - Personnel expense 

category was $29 million (16 percent) below its year-to-date budget, 

and represented 58 percent of the total Ongoing Operations variance. 

• Approximately $20 million was spent in the Receivership Funding 

component of the 2007 Corporate Operating Budget, which was $55 

million (74 percent) below the budget for the year. The Outside 

Services - Personnel expense category was $49 million (79 percent) 

below its budget, and represented 88 percent of the total Receivership 

Funding variance. 

I. Corporate Fund Financial Statement Results (See pages 11 - 12 for detailed data and charts.)

DIF 

• For 2007, DIF’s comprehensive income totaled $2.248 billion compared to $1.568 billion for 

last year. Excluding the recognition of exit fees earned of $345 million (a one-time adjustment) 

from the 2006 results, comprehensive income rose by $1.025 billion, or 84 percent, from a year 

ago. This year-over-year increase was primarily due to a $611 million increase in assessment 

revenue, a $299 million increase in interest revenue, a higher contribution from unrealized 

gain/loss on AFS securities of $298 million, offset by a $42 million increase in operating 

expenses and a $147 million increase in the provision for insurance losses. 

 

• During the fourth quarter of 2007, DIF’s receivables from resolutions, net, decreased by $1.249 

billion to $808 million primarily due to $1.289 billion in dividends from the NetBank 

receivership. This decrease was in part offset by a $53 million increase in the net receivable 

resulting from the Miami Valley Bank closing on October 4, 2007. 
4

• The DIF portfolio's interest revenue was $2.540 billion in 2007, or $299 million higher than the 

$2.241 billion of interest revenue earned in 2006. The largest contributor to the overall 

increase in 2007 interest revenue was TIPS inflation compensation of $314 million, which was 

$205 million more than the amount earned in 2006. This increased inflation compensation 

reflected the comparatively large increases in the CPI during 2007 stemming from rising 

energy and food prices. The remaining $94 million year-over-year increase in interest revenue 

resulted from: 1) slightly higher average portfolio yields in 2007 as newly purchased securities 

continued to have somewhat higher yields than those of maturing securities; and 2) a growing 

investment portfolio balance. The DIF’s AFS portfolio reported a $125 million unrealized gain 

in 2007 compared with a $173 million unrealized loss in 2006. During 2007, conventional 

Treasury yields and TIPS real yields decreased, resulting in higher market prices. In contrast, 

these yields increased during 2006, resulting in market price declines. 

FSLIC Resolution Fund (FRF)

 

• FRF’s net income for 2007 was $64 million compared to a $203 million loss for 2006. This 

change is primarily due to an increase in criminal restitution income of $19 million, an increase 

in the recovery of tax benefits of $33 million, and a decrease in Goodwill/Guarini litigation 

expenses of $215 million. 

• During the fourth quarter of 2007, FRF accrued a $35 million contingent liability and offsetting 

receivable from the U.S. Treasury for judgments for two Goodwill cases that were fully 

adjudicated as of year-end. These funds were paid in January 2008. For the year ending 

December 31, 2007, FRF paid or accrued a total of $440 million in Goodwill litigation 

expenses to resolve eight cases, compared with a total of $447 million on six Goodwill cases 

during 2006. 

• FRF paid $225 million to the Resolution Funding Corporation (REFCORP) on October 10, 

2007, bringing total payments to REFCORP to $4.797 billion. Subsequent to year-end 2007, 

FRF paid an additional $225 million to REFCORP on January 10, 2008. The FDIC must 

transfer to the REFCORP the net proceeds from the sale of FRF-RTC assets (once all liabilities 

of the FRF-RTC have been provided for) to pay the interest on REFCORP bonds, which were 

issued to fund early Resolution Trust Corporation resolutions. Any such payments benefit the 

U.S. Treasury, which would otherwise be obligated to pay the interest on the bonds. 

II. DIF Investment Results (See pages 13 – 14 for detailed data and charts.)

• During 2007, the amortized cost (book value) of the DIF investment portfolio increased by 

$1.611 billion or by three percent—from $48.858 billion on December 31, 2006, to $50.469 

billion on December 31, 2007. Moreover, during the period, the DIF portfolio’s market value 

increased by $3.340 billion or by seven percent, from $49.038 billion on December 31, 2006, to 

$52.378 billion on December 31, 2007. 

• The DIF investment portfolio's total return for 2007 was 8.63 percent, approximately 23 basis 

points less than its benchmark, the Merrill Lynch 1 - 10 Year U.S. Treasury Index (Index), 

which had a total return of 8.86 percent during the same period. Given the significant rise in 
5

Treasury security prices during the year reflecting lower market yields, the DIF portfolio’s 

large cash balance acted as a drag on relative total return performance. 

 

• During the fourth quarter of 2007, consistent with the approved quarterly Corporate investment 

strategy, staff deferred purchases of Treasury securities in light of the comparatively low 

Treasury yields available during the quarter. On December 31, 2007, the DIF portfolio’s 

overnight investment balance was $4.240 billion, well above its $150 million target floor 

balance. 

The Treasury Market 

• During the fourth quarter of 2007, conventional Treasury yields decreased substantially, 

reflecting two 25-basis point cuts in federal funds target rate during the quarter, and reflecting 

market sentiment for additional cuts in the target rate during the first quarter and second 

quarters of 2008. In addition, Treasuries also rallied in response to “flight to quality” trades by 

investors seeking the relative safety of Treasury securities. In the fourth quarter, yields on 

three-month and six-month T-Bills decreased by 56 basis points and 69 basis points, 

respectively. The two-year note yield, which is also sensitive to actual as well as anticipated 

changes in the federal funds rate, decreased by 93 basis points, again, reflecting the 

aforementioned 50-basis point cut in the federal funds rate and reflecting expectations for 

additional rate cuts. Intermediate-maturity Treasury yields also decreased over the course of 

the quarter. The yield on the five-year Treasury note decreased by 80 basis points; the yield on 

the ten-year Treasury note decreased by 57 basis points. The conventional Treasury yield 

curve steepened during the fourth quarter of 2007; on December 31, 2007, the two-year to tenyear yield curve had a 97-basis point positive spread (compared to positive 61-basis point 

spread at the beginning of the quarter). Over the past five years, this spread has averaged 99 

basis points. 

• During the fourth quarter of 2007, Treasury Inflation-Protected Securities’ (TIPS) real yields 

decreased dramatically, reflecting lower actual and anticipated interest rates and concerns over 

weak economic growth. In addition, as the magnitude of the declines in many cases were 

larger than those of comparable maturity conventional Treasury yields, such real yield declines 

reflect some modest concerns over growing inflationary pressures. The real yield of the DIF 

portfolio’s short-maturity TIPS (with a maturity of a little over one-year at the end of the 

quarter) decreased by 130 basis points during the quarter. The real yield on the portfolio’s 

longest-maturity TIPS (with a maturity of just over four years) decreased by 107 basis points. 

The real yield on the 10-year TIPS maturing on January 15, 2017, decreased by 57 basis points. 

Prospective Strategies 

• The current DIF investment strategy provides for purchasing AFS conventional with maturities 

of six years or less, for purchasing AFS TIPS, and for holding excess overnight investments, 

depending on Treasury market conditions and developments during the first quarter of 2008. 

During the quarter, if appropriate, staff will take advantage of any instances when yields rise 

toward the upper end of the recent trading range by purchasing short- to intermediate-maturity 

conventional Treasury securities and TIPS. Any securities purchased during the quarter will be 

designated AFS. As with recent quarterly investment strategies, conventional AFS securities 

will be limited to maturities of six years or less, as a means to help control fund balance 

volatility. (See attached Approved Investment Strategy.) 
6

• As part of the DIF portfolio’s approved fourth quarter investment strategy, an objective was 

established to reach a $15 billion primary reserve target floor balance over the near term, with 

the understanding that this goal would not be reached until at least the first quarter of 2008. At 

the end of the fourth quarter of 2007, the primary reserve stood at $14.317 billion. The DIF 

portfolio’s first quarter 2008 investment strategy continues to include this primary reserve 

target objective. 

III. Budget Results (See pages 15 - 16 for detailed data.)

Approved Budget and Staffing Modifications 

During the fourth quarter of 2007, three modifications were made to the 2007 Corporate Operating 

Budget, in accordance with the authority delegated by the Board of Directors in the 2007 Budget 

Resolution: 

• In October 2007, the Chief Financial Officer approved a reallocation of $3.7 million and 

$0.5 million, respectively, from the Salaries and Compensation expense category in the 

ongoing operations components of the budgets of the Division of Supervision and 

Consumer Protection (DSC) and the Division of Information Technology (DIT) to the 

Equipment expense category in DIT’s budget. The additional $4.2 million in equipment 

funding was required to support the procurement of application software and equipment 

for the new Java/Unix platform and to upgrade or replace obsolete equipment. This 

funding reallocation reduced DIT’s projected 2008 budget requirements. Funds were 

available for reallocation in the DSC and DIT Salary and Compensation budgets because a 

large number of vacancies in those organizations were not filled as quickly as projected. 

• In October 2007, funding was reallocated within the individual budgets for the Executive 

Offices to better align those budgets with projected personnel, travel, and other expenses 

for each office. There was no net change to the total budget for any major expense 

category in the combined Executive Offices budget. 

• In December 2007, DIT reallocated $343,000 within the ongoing operations component of 

its budget from the Equipment expense category to the Buildings expense category in 

order to properly account for expenses related to the installation of a wireless antenna at 

the Seidman Center. These expenses were initially budgeted in and charged to the 

Equipment category, but it was subsequently determined that they should have been 

charged to the Buildings category and treated as a capital improvement to the complex. 

This reallocation resulted in no net change to the total approved DIT budget. 

A 2007 Investment Budget spending projection for the Legal Information Management System 

(LIMS) project was also revised during the quarter. The 2007 spending estimate for LIMS was 

reduced by $206,380, to be consistent with a revised project plan for the project. That amount 

will remain available for use by the LIMS project in 2008, in accordance with approved 

Investment Budget procedures. 
7

Status of Spending for the Implementation of Deposit Insurance Reform 

The 2007 Corporate Operating Budget approved by the Board of Directors in December 2006 

included funding for the continued implementation of Deposit Insurance Reform. Excluding 

internal Salaries and Compensation expenses, $4.9 million was spent on systems changes required 

in conjunction with Deposit Insurance Reform in 2006, and $1.8 million was spent on printing and 

distribution costs. During 2007, an additional $4.9 million (excluding internal salaries and 

compensation expenses) was spent to support Deposit Insurance Reform implementation, as 

follows: 

• Approximately $4.3 million was spent for system development and enhancement 

activities. All of the targeted systems have now been upgraded and are fully functional for 

the deposit insurance reform implementation. 

• Approximately $0.6 million was spent for additional printing and distribution of updated 

deposit insurance brochures. All updates of printed materials that were required to support 

the implementation of deposit insurance reform were completed and distributed by yearend 2007. 

In addition, DIR hired in mid-2007 two new employees to support deposit insurance pricing on an 

ongoing basis, as authorized by the Board in March 2006. Estimated 2007 Salary and 

Compensation expenses for these employees were approximately $170 thousand. 

All requirements for the initial implementation of Deposit Insurance Reform, as outlined in the 

case presented to the Board in March 2006, have now been completed. Accordingly, this will be 

the final quarterly report on expenses incurred in connection with those requirements. As of 

December 31, 2007, the Corporation had spent a total of approximately $9.8 million over two 

years to support the initial implementation of Deposit Insurance Reform (excluding Salary and 

Compensation expenses for the two new DIR employees).1

Spending Variances 

Significant spending variances by major expense category and division/office for the year ending 

December 31, 2007, are discussed below. Significant spending variances are defined as those that 

either (1) exceed the annual budget; or (2) are under the total annual budget by $1 million or more 

and represent more than three percent of the major expense category or total division/office 

budget. 

Significant Spending Variances by Major Expense Category 

Ongoing Operations

There were four major expense categories in which there were significant spending variances for 

the year in the Ongoing Operations component of the 2007 Corporate Operating Budget: 

 

1

Additional systems development work will be required after the Board completes rulemaking on the payment of dividends 

from the new Deposit Insurance Fund (currently projected to occur no sooner than the first half of 2009). At such time as 

those requirements are defined, they will be funded through DIT’s annual ongoing operating budget for information 

technology projects and will be accounted for as a separate project. 
8

• Outside Services-Personnel expenditures were $29 million, or 16 percent, less than 

budgeted. The variance was largely due to lower-than-budgeted payments to the 

Department of Justice for litigation services; less-than-anticipated spending for IT-systems 

development, operations, and maintenance support; lower net costs for the Student 

Residence Center (because of increased proceeds derived from outside use of the facility); 

and lower-than-budgeted spending on human resources contractual services. 

• Travel expenditures were $3 million, or 5 percent, less than budgeted. Overall corporate 

travel costs were lower because DRR staff participated in fewer compliance examinations 

than initially projected and CEP rotation schedules were adjusted, resulting in less travel for 

CEP participants. In addition, lower-than-projected travel costs were incurred for 

supervision, field oversight and litigation activities in the Legal Division. 

• Outside Services-Other expenditures were almost $2 million, or 10 percent, less than 

budgeted. This variance reflected successful negotiations to lower insurance rates, lowerthan-anticipated outside printing costs, and a reduction in the number of local telephone lines 

needed for examinations as a result of the deployment of wireless data cards to examiners. 

• Other Expenses were $3 million, or 28 percent, less than budgeted. This variance was 

largely due to (a) lower-than-projected spending by employees under the first year of the 

new Professional Learning Accounts program; and (b) charges of expenses for some off-site 

conferences to the Travel expense category rather than the Other Expenses expense 

category. 

Receivership Funding

The Receivership Funding component of the Corporate Operating Budget includes budgeted 

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. There 

were four major expense categories in which significant spending variances occurred during the 

year in the Receivership Funding component of the 2007 Corporate Operating Budget: 

• Salary and Compensation2

 ($2 million, or 71 percent, less than budgeted). 

• Outside Services-Personnel ($49 million, or 79 percent, less than budgeted). 

• Travel ($4 million, or 64 percent, less than budgeted). 

• Buildings ($0.2 million, or 7 percent, more than budgeted). 

Variances in the first three expense categories were attributable to the limited receivership and 

resolution activity that occurred during the year. The overspending variance in the Buildings 

category was due to incorrect coding of charges totaling $1.7 million (the expenses should have 

been charged to the Outside Services-Personnel category). 

 

2

 Overtime is the only account budgeted in the Salary and Compensation expense category of the Receivership Funding 

component of the Corporate Operating Budget in 2007. All staff salaries are budgeted and expensed in the Ongoing 

Operations budget component. 
9

Significant Spending Variances by Division/Office3

There were significant spending variances from total approved 2007 budgets for nine 

organizations during the year: 

• DRR spent $43 million, or 43 percent, less than budgeted. This variance was mostly 

attributable to under spending in the Receivership Funding component of its operating 

budget due to the limited receivership and resolution activity that occurred during the year. 

• The Legal Division spent $18 million, or 20 percent, less than budgeted. This variance 

was largely attributable to under spending in the Receivership Funding component of its 

operating budget due to the limited receivership and resolution activity that occurred 

during the year. 

• DIT spent $11 million, or 5 percent, less than budgeted for 2007. DIT spent $8.6 million 

less than budgeted in the ongoing operations component of its budget, primarily due to 

lower-than-projected spending for application development, operations, and maintenance 

activities. It also spent $2.6 million less than estimated in 2007 from the approved 

Investment Budget projects that are monitored and reported to the Board separately by the 

CIRC. These latter variances were attributable primarily to delays in project schedules. 

• The Division of Administration spent $7 million, or 5 percent, less than budgeted. This 

variance was largely attributable to (a) lower-than-anticipated net costs for the Student 

Residence Center (due to higher-than-projected proceeds received in connection with use 

of the facility by outside parties), and (b) less use of compensation and consulting services 

on human resource matters than originally projected for 2007. 

• DIR spent $3 million, or 9 percent, less than budgeted. This variance was attributable to 

the large number of budgeted positions that were vacant during the year and a significant 

reduction in the FDIC’s share of the costs for enhancements to the Central Deposit 

Repository under the cost sharing agreement with the other bank regulatory agencies. 

• The Inspector General spent $2 million, or 8 percent, less than budgeted. This variance 

was primarily attributable to the fact that the OIG’s on-board staffing was below its 

authorized staffing level throughout the year. 

• DOF spent $2 million, or 6 percent, less than budgeted. This variance was largely 

attributable to a larger-than-projected number of vacancies due to unanticipated 

management and staff departures during the year. 

• Executive Support Offices spent nearly $2 million, or 10 percent, less than budgeted. This 

variance was largely attributable to budgeted positions that were vacant during the year in 

the Office of Diversity and Economic Opportunity and the Office of the Ombudsman. 

• CU spent $1 million, or 4 percent, less than budgeted. This variance was attributable to (a) 

lower-than-budgeted spending for travel as a result of adjustments to the travel 

requirements for CEP participants; and (b) reduced spending for contractor services as a 

 

3

 Information on division/office variances reflects variances in both the Corporate Operating and Investment Budgets. 
10

result of performance issues with a contractor related to the development of the DRR 

training and commissioning program, which have since been resolved. 
FDIC CFO REPORT TO THE BOARD – Fourth Quarter 2007

Fund Financial Results ($ in Millions)

page 11

Balance Sheet

(audited) (unaudited) (audited)

Dec-07 Sep-07

Cash & cash equivalents $ 4,245 $ 2,854 $ 1,391 $ 2,954 $ 1,291 

Investment in U.S. Treasury obligations, net 46,588 47,933 (1,345) 46,142 446 

Assessments receivable, net 245 173 72 0 245 

Interest receivable on investments and other assets, net 768 706 62 748 20 

Receivables from resolutions, net 808 2,057 (1,249) 539 269 

Property, buildings and other capitalized assets, net 351 357 (6) 377 (26)

Total Assets $ 53,005 $ 54,080 $ (1,075) $ 50,760 $ 2,245 

Accounts payable and other liabilities 152 1,942 (1,790) 154 (2)

Postretirement benefit liability 116 114 2 130 (14)

Contingent Liabilities: future failures 124 70 54 111 13 

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

Total Liabilities $ 592 $ 2,326 $ (1,734) $ 595 $ (3)

FYI: Unrealized gain on available-for-sale securities, net 359 221 138 234 125 

FYI: Unrealized postretirement benefit gain 19 22 (3) 2 17 

FUND BALANCE $ 52,413 $ 51,754 $ 659 $ 50,165 $ 2,248 

Income Statement 

(audited) (unaudited) (audited)

Dec-07 Sep-07

Assessments earned $ 643 $ 404 $ 239 $ 32 $ 611 

Interest earned on investment securities 2,540 1,955 585 2,241 299 

Exit fees earned 0 0 0 345 (345)

Other revenue 14 11 3 26 (12)

Total Revenue $ 3,197 $ 2,370 $ 827 $ 2,644 $ 553 

Operating expenses (includes depreciation expense) 993 730 263 951 42 

Provision for insurance losses 95 56 39 (52) 147 

Other expenses 3 2 1 6 (3)

Total Expenses & Losses $ 1,091 $ 788 $ 303 $ 905 $ 186 

Net Income $ 2,106 $ 1,582 $ 524 $ 1,739 $ 367 

Unrealized gain/(loss) on available-for-sale securities, net 125 (13) 138 (173) 298 

Unrealized postretirement benefit gain/(loss) 17 20 (3) 2 15 

YTD Comprehensive Income $ 2,248 $ 1,589 $ 659 $ 1,568 $ 680 

Quarterly

Year-Over-Year

Change

Change

Change

Quarterly

Dec-06

Deposit Insurance Fund

Deposit Insurance Fund

Year-Over-Year

Change

Dec-06

Over the last three years, the 

provision for insurance losses 

added to net income as 

estimated losses that had been 

previously booked for both 

existing receiverships and 

potential failures were 

reversed. During 2007, this 

trend had reversed.

(159) (154) (153)

81

(171)

(5)

105

14

(4)

(28) 4 0

(353)

(160)

(52)

95

-$400

-$300

-$200

-$100

$0

$100

$200

2004 2005 2006 2007

$ in Milions

Closed Banks Anticipated Failures Other Total Provision for Losses

Components of Provision for Insurance Losses

Unrealized Gains/Losses on AFS Securities - 

Effect on Quarterly Comprehensive Income 

($300)

($200)

($100)

$0

$100

$200

$300

$400

$500

$600

$700

$800

Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07

$ in Millions

Unrealized Gains/Losses AFS Net Income

 $596 $371 $428 $173 $580 $482 $527 $659

Quarterly Comprehensive Income Totals
page 12

Fund Financial Results - continued ($ in Millions )

$20.8 $19.2

$18.9 $18.6

Statements of Cash Flows 

(audited) (unaudited) (audited)

Dec-07 Sep-07

Net Income $ 2,106 $ 1,582 $ 524 $ 1,739 $ 367 

Amortization of U.S. Treasury obligations (unrestricted) 571 431 140 599 (28)

TIPS Inflation Adjustment (314) (286) (28) (109) (205)

Depreciation on property and equipment 63 40 23 53 10 

Provision for insurance losses 95 56 39 (52) 147 

Exit fees earned 0 0 0 (345) 345 

Unrealized gain on postretirement benefits 17 20 (3) 0 17 

Net change in operating assets and liabilities (668) 5 (673) 101 (769)

Net Cash Provided by Operating Activities $ 1,870 $ 1,848 $ 22 $ 1,986 $ (116)

Investments matured and sold 7,626 6,256 1,370 6,800 826 

Investments purchased (includes purchase of property and 

equipment) (8,205) (8,204) (1) (9,062) 857 

Net Cash (Used) by Investing Activities $ (579) $ (1,948) $ 1,369 $ (2,262) $ 1,683 

Net Increase (Decrease) in Cash and Cash Equivalents 1,291 (100) 1,391 (276) 1,567 

Cash and Cash Equivalents at beginning of year 2,954 2,954 0 3,230 (276)

Cash and Cash Equivalents - Ending $ 4,245 $ 2,854 $ 1,391 $ 2,954 $ 1,291 

(audited) (unaudited) (audited)

Dec-07 Sep-07

Cash and cash equivalents $ 3,617 $ 3,764 $ (147) $ 3,616 $ 1 

Accumulated deficit, net (123,770) (123,836) 66 (123,834) 64 

Resolution equity 3,648 3,790 (142) 3,620 28 

Total revenue $ 188 $ 150 $ 38 $ 169 $ 19 

Operating expenses 3 2 1 12 (9)

Goodwill/Guarini litigation expenses 196 178 18 411 (215)

Net (loss/income) $ 64 $ (2) $ 66 $ (203) $ 267 

# of Cases # of Cases

Dismissals/ 

Time 43 0

Settlements 18 3

Judgments 42 5

Pending 19 0

Totals 122 8

Amount Paid/ 

Accrued

Deposit Insurance Fund

Summary of Goodwill & Guarini Litigation 

(Inception-to-Date)

* Four institutions account for 65% of the total Goodwill payments 

(Glendale Federal Bank - $382 million, Westfed Holdings, Inc. - $211 

million, LaSalle Talman Bank - $155 million, and Home Savings of 

America - $150 million).

Goodwill

N/A

Guarini

N/A

$274 

$1,238*

N/A

$1,387 

FSLIC Resolution Fund 

Change

Quarterly

Dec-06

Dec-06

$121 

$153 

Change

Year-Over-Year

Change

Amount Paid

N/A

$ in Millions

$149 

Change

Quarterly Year-Over-Year

Interest Earned on Investment Securities

$345

$109

$2,342

$2,226 $1,996 $2,131

$314

$2,540

$2,241

0

500

1,000

1,500

2,000

2,500

3,000

2005 2006 2007

$ in Millions

Interest Income TIPS Inflation Compensation Total Interest Earned

2004, 1 Rcvr, 

$1,524, 0.2%

2003, 2 Rcvrs, 

$14,772, 2%

2002, 4 Rcvrs, 

$32,319, 4%

1990-1999, 

11 Rcvrs, 

$7,189, 0.8% 2001, 1 Rcvr, 

$218,893, 

25%

2007, 3 Rcvrs,

$591,974, 

68%

DIF Active Receiverships - Remaining Assets-in-Liquidation

by Year of Receivership Failure

($ in Thousands)

Active Receiverships = 22

Total Assets-in-Liquidation = $866,671
page 13

12/31/07 12/31/06 Change

Par Value $47,562 $46,483 $1,079

Amortized Cost $50,469 $48,858 $1,611

Market Value $52,378 $49,038 $3,340

Primary Reserve 1 $14,317 $13,911 $406

Primary Reserve Target Floor 2 $15,000 $10,000 $5,000

Primary Reserve % of Total Portfolio 26.9% 28.0% (1.1%)

Year-to-Date Total Return (Portfolio) 8.629% 4.056% not applicable

Year-to-Date Total Return (Benchmark) 3 8.861% 3.571% not applicable

Total Return Variance (in basis points) (23.2) 48.5 not applicable

Yield-to-Maturity 4 4.72% 4.89% (0.17%)

Weighted Average Maturity (in years) 4.06 3.57 0.49

Effective Duration (in years) 5 

 Total Portfolio 3.19 2.82 0.37

 Available-for-Sale Securities 1.29 1.80 (0.51)

 Held-to-Maturity Securities 3.94 3.29 0.65

12/31/07 12/31/06 Change

Book Value 6 $393 $381 ($12)

Yield-to-Maturity 4.22% 5.37% (1.15%)

Weighted Average Maturity (in days) 19 13 6

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.

3

 The benchmark is the total return of the Merrill Lynch 1-10 Year U.S. Treasury Index.

2 This primary reserve target floor was increased from the third quarter's $10 billion target, although when adopted it was 

understood that the target floor would not be reached until at least the first quarter of 2008.

4

 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.

5

 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)

U.S. Treasury Security Yield Curves

0.75%

1.25%

1.75%

2.25%

2.75%

3.25%

3.75%

4.25%

4.75%

5.25%

5.75%

3

Month

6

Month

1Year

2

Year

3

Year

4

Year

5

Year

7

Year

10

Year

Conventional 12/31/06

12/ 31/07

TIPS 12/31/06

12/31/07
page 14

Maintain a $150 million target floor overnight investment balance.

Strategically invest all available funds in excess of the target overnight investment balance, which may include purchasing

conventional Treasury securities within the zero- to six-year maturity sector, purchasing Treasury Inflation-Protected

Securities (TIPS) within the two- to ten-year maturity sector, and/or purchasing callable Treasury securities with final

maturities not to exeed eight years, subject to the following limitations:

All newly purchased Treasury securities shall be designated available-for-sale (AFS).

Newly purchased AFS conventional Treasury securities should have maturities of six years or less.

Increase the portfolio's primary reserve balance, with a goal of reaching a $15 billion target floor balance

over the near term.

No changes in strategy 

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.

No changes in strategy 

Approved Investment Strategy

Current Strategy as of 4th Quarter 2007

Strategy Changes for 1st Quarter 2008

Current Strategy as of 4th Quarter 2007

DEPOSIT INSURANCE FUND

Strategy Changes for 1st Quarter 2008

NATIONAL LIQUIDATION FUND
page 15

1) Budgets for investment projects are approved on a multi-year basis; the "Year-to-Date Budget" amount reflects the 2007 

spending estimates for approved projects. Detailed quarterly reports on the status of those projects are provided separately 

to the Board by the Capital Investment Review Committee. 

YTD YTD % of 

Major Expense Category Budget Expenditures Budget Used Variance

Corporate Operating Budget 

Ongoing Operations

Salaries & Compensation $650,116 $638,428 98% ($11,688)

Outside Services - Personnel 179,424 150,034 84% (29,390)

Travel 56,719 53,738 95% (2,981)

Buildings 68,290 67,076 98% (1,214)

Equipment 49,563 49,201 99% (362)

Outside Services - Other 15,723 14,158 90% (1,565)

Other Expenses 12,655 9,172 72% (3,483)

Total Ongoing Operations $1,032,490 $981,807 95% ($50,683)

Receivership Funding

Salaries & Compensation $3,420 $990 29% ($2,430)

Outside Services - Personnel 61,347 12,827 21% (48,520)

Travel 5,646 2,046 36% (3,600)

Buildings 2,300 2,471 107% 171

Equipment 226 31 14% (195)

Outside Services - Other 543 185 34% (358)

Other Expenses 1,518 1,156 76% (362)

Total Receivership Funding $75,000 $19,706 26% ($55,294)

Total Corporate Operating Budget $1,107,490 $1,001,513 90% ($105,977)

Investment Budget 1 $14,496 $11,946 82% ($2,550)

Grand Total $1,121,986 $1,013,459 90% ($108,527)

(Dollars in Thousands)

Executive Summary of 2007 Budget and Expenditures

by Major Expense Category

Through December 31, 2007
page 16

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 2007 

spending estimates for approved projects. Detailed quarterly reports on the status of those projects are provided separately 

to the Board by the Capital Investment Review Committee.

YTD YTD % of 

Division/Office Budget Expenditures Budget Used Variance

 Corporate Operating Budget 

 Supervision & Consumer Protection $390,408 $385,455 99% ($4,953)

 Information Technology 194,687 186,054 96% (8,633)

 Administration 159,340 152,143 95% (7,197)

 Resolutions & Receiverships 98,377 55,688 57% (42,689)

 Legal 90,619 72,314 80% (18,305)

 Insurance & Research 37,088 33,780 91% (3,308)

 Finance 30,891 28,895 94% (1,996)

 Inspector General 24,938 22,867 92% (2,071)

 Corporate University 30,899 29,898 97% (1,001)

 Executive Support 1 17,797 16,100 90% (1,697)

 Executive Offices 2 7,446 6,514 87% (932)

 Government Litigation 25,000 11,805 47% (13,195)

 Total, Corporate Operating Budget $1,107,490 $1,001,513 90% ($105,977)

 Investment Budget 3

 Information Technology $13,871 $11,283 81% ($2,588)

 Resolutions & Receiverships 227 358 158% 131

 Insurance & Research 278 305 110% 27

 Corporate University 120 0 0% (120)

 Total, Investment Budget 3 $14,496 $11,946 82% ($2,550)

 Combined Division/Office Budgets

 Supervision & Consumer Protection $390,408 $385,455 99% ($4,953)

 Information Technology 208,558 197,337 95% (11,221)

 Administration 159,340 152,143 95% (7,197)

 Resolutions & Receiverships 98,604 56,046 57% (42,558)

 Legal 90,619 72,314 80% (18,305)

 Insurance & Research 37,366 34,085 91% (3,281)

 Finance 30,891 28,895 94% (1,996)

 Inspector General 24,938 22,867 92% (2,071)

 Corporate University 31,019 29,898 96% (1,121)

 Executive Support 1 17,797 16,100 90% (1,697)

 Executive Offices 2 7,446 6,514 87% (932)

 Government Litigation 25,000 11,805 47% (13,195)

 Grand Total $1,121,986 $1,013,459 90% ($108,527)

Executive Summary of 2007 Budget and Expenditures

by Budget Component and Division/Office

Through December 31, 2007

(Dollars in Thousands)