~~'~

Federal Deposit Insurance Corporation

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

September 1, 2016

MEMORANDUM TO: The Board of Directors

FROM: Steven O. App

Deputy to the airman and

Chief Financial Officer

Craig R. Jarvill

Director, Division of Finance

SUBJECT: Second Quarter 2016 CFO Report to the Board

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

June 30, 2016.

Executive Summary

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

$2.8 billion, from $75.1 billion to $77.9 billion. This quarterly increase was primarily due to

$2.3 billion of assessment revenue, a $110 million unrealized gain on U.S. Treasury

investments, $164 million of interest on U.S. Treasury obligations, and a $627 million decrease

in provision for insurance losses, partially offset by $441 million in operating expenses.

The DIF's reserve ratio, which is the DIF balance as a percent of estimated insured deposits,

increased to 1.17 percent as of June 30 from 1.13 percent at the end of March. As a result,

significant changes to assessments will occur now that the reserve ratio exceeds 1.15 percent.

Regular risk-based assessment premium rates will decline, and a revised method for

calculating risk-based assessment rates for banks with less than $10 billion in total assets will

apply. In addition, the Dodd-Frank Act raises the minimum reserve ratio from 1.15 to 1.35

percent, requires that the reserve ratio reach 1.35 percent by September 30, 2020, and

mandates that banks with total assets of $10 billion or more bear the cost of this increase. The

FDIC will meet this requirement by imposing quarterly surcharges on large banks beginning

third quarter 2016.

• During the second quarter of 2016, the FDIC was named receiver for two failed institutions.

The combined assets at inception for these institutions totaled $116 million with an estimated

loss of $18 million. The corporate cash outlay during the second quarter for these failures was

approximately $31 million.

Through June 30, 2016, overall FDIC Operating Budget expenditures were below budget by 8

percent ($81 million). Spending in the Ongoing Operations component was $34 million, or 4

percent, under budget, largely due to underspending for equipment, salaries and

compensation, and contractual services. Spending in the Receivership Funding component

was $47 million, or 25 percent, under budget, primarily due to lower-than-budgeted spending

for contractual services related to failed financial institutions.
2

I. Corporate Fund Financial Results (See pages 6 - 7 for detailed data and charts.) 

Deposit Insurance Fund 

 For the six months ending June 30, 2016, the DIF’s comprehensive income totaled $5.3 billion 

compared to comprehensive income of $4.8 billion for the same period last year. This $501 

million increase was mostly due to a $139 million increase in assessment revenue, a $138 

million increase in interest on U.S. Treasury obligations, and a $325 million increase in the 

unrealized gain on U.S. Treasury investments. 

 The provision for insurance losses was a negative $670 million for the first half of 2016. The 

negative provision primarily resulted from a $718 million decrease in the estimated losses for 

institutions that failed in current and prior years, partially offset by a $71 million increase in the 

estimated losses for future failures.

Assessments

 During June, the DIF recognized a total of $2.328 billion in assessment revenue. Of this 

amount, $2.254 billion represented the estimate for second quarter 2016 insurance coverage. 

Additionally, the DIF recognized an adjustment of $75 million that increased assessment 

revenue. This adjustment consisted of a $77 million increase from prior period amendments

(mainly due to risk rating changes) and a $2 million decrease to the estimate for first quarter 

2016 insurance coverage recorded at March 31, 2016. The latter adjustment was primarily due 

to lower than estimated assessment rates. 

 On June 30, 2016, the FDIC collected $2.3 billion in DIF assessments for first quarter 2016 

insurance coverage. 

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

DIF Investment Portfolio 

 On June 30, 2016, the total liquidity (also total market value) of the DIF investment portfolio 

stood at $70.5 billion, up $6.7 billion from its December 31, 2015, balance of $63.7 billion. 

During the first half of the year, interest revenue, receivership dividends, and deposit 

insurance assessment collections exceeded resolution-related outlays and operating 

expenses. 

 On June 30, 2016, the DIF investment portfolio’s yield was 0.94 percent, unchanged from its 

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

half of the year 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 second quarter, 

thus temporarily bringing down the overall portfolio yield. 

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

purchased a total of 17 short- to intermediate-maturity conventional Treasury securities, all 

designated as available-for-sale. The 17 securities purchased during the second quarter had 

a total par value of $7.8 billion, a weighted average yield of 0.71 percent, and a weighted 

average maturity of 1.25 years. 
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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 made during the second quarter in accordance with the authority delegated 

by the Board of Directors. None of these modifications changed the total 2016 FDIC Operating 

Budget as approved by the Board in December 2015. 

 In May 2016, the CFO approved modifications to the Salaries and Compensation budgets of 

divisions and offices within the Ongoing Operations component based on an analysis of yearto-date spending for salaries, bonuses/lump-sum payments, and fringe benefits. That 

reallocation realigned existing budget authority among most divisions and offices, but resulted 

in no change to the total budget for either the Ongoing Operations or Receivership Funding 

budget components. The Corporate Unassigned contingency reserve in the Ongoing 

Operations budget component was increased by $4 million as a result of those reallocations. 

 In June 2016, the CFO approved a reallocation within the Ongoing Operations and 

Receivership Funding components of the 2016 FDIC Operating Budget following a corporatewide mid-year reassessment of actual and projected spending for the year. The budgets for 

all major expense categories and most divisions and offices were adjusted in the Ongoing 

Operations component. 

o The most significant increase in the Ongoing Operations component was a net increase 

of over $6 million to the budget of the Division of Administration (DOA) to provide for a 

number of security-related initiatives. The additional funds included increases of nearly 

$4 million for the completion of a nationwide upgrade of the facility access system to 

comply with Department of Homeland Security requirements; over $3 million for 

completion of the rollout of the FDIC’s enhanced Access Control Program, which 

includes the introduction of the secure Personal Identification Verification card; nearly 

$2 million to cover the increased cost of U.S. OPM background investigations of FDIC 

employees and contractors; and $500,000 for additional security equipment in the 

Sensitive Compartmented Information Facility that provides secure video teleconference 

capabilities for the Corporation. DOA realigned $6 million of budgeted funds from other 

projects to partially offset these additional funding needs. 

o The mid-year budget reallocation reduced the Corporate Unassigned contingency 

reserve by nearly $6 million in the Ongoing Operations budget. The amounts remaining 

within the Corporate Unassigned contingency reserves for the Ongoing Operations and 

the Receivership Funding budget components as of June 30, 2016, were $16,604,545 

and $27,636,513, respectively. 

Spending Variances 

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

Significant spending variances for the six months ending June 30, 2016, are defined as those that 

either (1) exceed the YTD budget by $2 million and represent more than three 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 $3 million and represents more than five 

percent of the major expense category or total division/office budget.
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Significant Spending Variances by Major Expense Category 

Ongoing Operations 

There was a significant spending variance in three major expense categories during the second 

quarter in the Ongoing Operations component of the 2016 FDIC Operating Budget: 

 Outside Services-Personnel expenditures were $6 million, or 5 percent, less-than-budgeted. 

DOA spent $3 million less-than-budgeted, largely due to the elimination of contractor records 

services support in the regions; lower-than-planned usage of various administrative and 

human resources contract services; and slower-than-budgeted spending on the Access 

Control and Electronic Security System projects. Elevated spending for these security-related 

projects during the second half of the year is expected to fully utilize DOA’s current budget 

surplus in this major expense category as well as the additional funding approved for this 

purpose during the mid-year budget review. The Division of Resolutions and Receiverships 

(DRR) spent $1 million less-than-budgeted, primarily due to lower-than-planned spending for 

advisory services in support of Title II operational readiness in its Complex Financial 

Institutions Branch. The Division of Consumer Protection spent $1 million less- thanbudgeted, primarily due to delays in MoneySmart projects, the Savings or Small Dollar Credit 

project, and the Household Survey, and due to lower-than-expected spending on the 

Economicinclusion.gov website maintenance. 

 Travel expenditures were approximately $4 million, or 7 percent, less-than-budgeted. This 

was primarily attributable to the Division of Risk Management Supervision, which spent $3 

million less-than-budgeted, primarily due to the improved condition of FDIC-supervised banks, 

and the exam frequency change for favorably-rated banks having assets less than $1 billion. 

Both of these factors result in fewer examinations, and less exam-related travel. 

 Equipment expenditures were approximately $12 million, or 26 percent, less-than-budgeted. 

This was primarily attributable to the Division of Information Technology (DIT) which spent $11 

million less-than-budgeted because of delays in its processing of hardware and software 

maintenance contracts and an ongoing evaluation of the possible use of shared services in 

lieu of acquiring FDIC-owned hardware. 

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. There were significant 

spending variances in three of the seven major expense categories through the second quarter in the 

Receivership Funding component of the 2016 FDIC Operating Budget: 

 Salaries and Compensation were $6 million, or 17 percent, less-than-budgeted. This variance 

was attributable to vacancies in budgeted non-permanent positions. 

 Outside Services-Personnel expenditures were $34 million, or 26 percent, less-than-budgeted. 

DRR spent $33 million less-than-budgeted, primarily because there were only three bank 

failures in the first six months of the year. This resulted in lower-than-budgeted expenses for 

contracts supporting owned real estate, loan servicing, bank closings, securitizations, loss 

share agreement oversight, environmental services, and asset valuation. 
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 Other Expenses were $4 million, or 50 percent, less-than-budgeted. This variance was 

attributable to the transfer of banking operations and the disposition of failed banks’ assets 

more quickly than expected.

Significant Spending Variances by Division/Office1

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

 DRR spent $45 million, or 25 percent, less-than-budgeted, largely due to less-than-budgeted 

spending for resolution and receivership workload for the reasons described above. 

 DIT spent $10 million, or 9 percent, less-than-budgeted. This variance was largely attributable 

to delays in spending its equipment budget, as explained above. This underspending was 

somewhat offset by higher-than-budgeted expenses in the Outside Services-Personnel 

category for ongoing infrastructure management services. 

 The Legal Division spent $5 million, or 5 percent, less-than-budgeted. This variance was 

largely due to underspending of approximately $4 million in the Salaries and Compensation 

expense category ($3 million in Receivership Funding and $1 million in Ongoing Operations) 

due to vacancies in budgeted non-permanent positions and slower-than-projected hiring to fill 

those vacancies. 

Other Matters 

An analysis of 2016 funding requirements for employee pay and benefits was completed in May in 

accordance with the 2016 Budget Resolution. The analysis determined that those costs had been 

underestimated during the preparation of the 2016 FDIC Operating Budget by approximately $7 

million in the Salaries and Compensation expense category, primarily due to an unbudgeted increase 

in the FDIC’s contribution rate for most employees under the Federal Employees Retirement System 

that became effective in late 2015. The CFO elected not to exercise his delegated authority to adjust 

the 2016 FDIC Operating Budget to address this shortfall, since the net projected budget shortfall is 

not material relative to the total budget, and there is excess budget authority available to cover the 

shortfall in other accounts within the Salaries and Compensation expense category. 

 

1

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

Fund Financial Results ($ in Millions) 

6

The estimated recoveries from 

assets held by receiverships and 

estimated payments related to 

shared-loss covered assets are used 

to derive the loss allowance on the 

receivables from resolutions.

The $110 million net adjustment to 

the receiverships’ shared-loss 

liability was due to unanticipated 

recoveries from shared-loss 

agreements where the non-singlefamily loss coverage has expired but 

the recovery period remains active. 

Also, numerous receiverships’ 

shared-loss agreements terminated 

early during the period, which 

resulted in the lower than anticipated 

losses on the covered assets.

The $347 million net adjustment 

consists of a decrease in projected 

future receivership expenses, higher 

recovery rates, and better than 

estimated asset liquidation activity. 

Balance Sheet

Unaudited Unaudited Quarterly Unaudited Year-Over-Year

Jun-16 Mar-16 Change Jun-15 Change

Cash and cash equivalents 5,510 $ 3,519 $ 1,991 $ 2,544 $ 2,966 $ 

Investment in U.S. Treasury obligations, net 64,690 63,833 857 55,850 8,840 

Assessments receivable, net 2,254 2,238 16 2,177 77 

Interest receivable on investments and other assets, net 309 474 (165) 590 (281) 

Receivables from resolutions, net 9,477 9,638 (161) 14,862 (5,385) 

Property and equipment, net 361 370 (9) 364 (3) 

Total Assets $ 80,072 82,601 $ 2,529 $ 76,387 $ 6,214 $ 

Accounts payable and other liabilities 246 217 29 278 (32) 

Liabilities due to resolutions 3,775 4,059 (284) 7,593 (3,818) 

Postretirement benefit liability 233 233 - 243 (10) 

Contingent liability for anticipated failures 437 443 (6) 684 (247) 

Contingent liability for litigation losses 0 0 - 0 - 

Total Liabilities $ 4,952 4,691 $ (261) $ 8,798 $ (4,107) $ 

FYI: Unrealized gain (loss) on U.S. Treasury investments, net 513 403 110 248 265 

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

Fund Balance $ 75,120 77,910 $ 2,790 $ 67,589 $ 10,321 $ 

Deposit Insurance Fund
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Fund Financial Results - continued ($ in Millions) 

$ in millions

Jun-16 Jun-15 Change Jun-16 Jun-15 Change Jun-16 Jun-15 Change

Total Receiverships 422 480 (58) - - - 422 480 (58) 

Assets in Liquidation 4,136 $ 6,337 $ (2,201) $ 2 $ 5 $ (3) $ 4,138 $ 6,342 $ (2,204) $ 

YTD Collections 837 $ 2,001 $ (1,164) $ 2 $ 2 $ - $ 839 $ 2,003 $ (1,164) $ 

YTD Dividend/Other Pymts - Cash 2,430 $ 4,708 $ (2,278) $ - $ - $ - $ 2,430 $ 4,708 $ (2,278) $ 

DIF FRF ALL FUNDS

Income Statement (year-to-date)

Unaudited Unaudited Quarterly Unaudited Year-Over-Year

Jun-16 Mar-16 Change Jun-15 Change

Assessments 4,656 $ 2,328 $ 2,328 $ 4,517 $ 139 $ 

Interest on U.S. Treasury obligations 311 147 164 173 138 

Other revenue 9 5 4 10 (1) 

Total Revenue $ 2,480 4,976 $ 2,496 $ 4,700 $ 276 $ 

Operating expenses 856 415 441 830 26 

Provision for insurance losses (670) (43) (627) (743) 73 

Insurance and other expenses 2 0 2 1 1 

Total Expenses and Losses $ 372 188 $ (184) $ 88 $ 100 $ 

Net Income 2,108 4,788 2,680 4,612 176 

Unrealized gain (loss) on U.S. Treasury investments, net 522 412 110 197 325 

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

Comprehensive Income $ 2,520 5,310 $ 2,790 $ 4,809 $ 501 $ 

Deposit Insurance Fund

Selected Financial Data

Unaudited Unaudited Quarterly Unaudited Year-Over-Year

Jun-16 Mar-16 Change Jun-15 Change

Cash and cash equivalents 872 $ 872 $ - $ 872 $ - $ 

Accumulated deficit (124,618) (124,617) (1) (124,523) (95) 

Total resolution equity 872 872 - 872 - 

Total revenue 1 1 - 2 (1) 

Operating expenses 2 1 1 1 1 

Provision for losses (3) (3) - - (3) 

Other expenses 2 2 - 1 1 

Goodwill litigation expenses - - - 63 (63) 

Net Income (Loss) - $ 1 $ (1) (63) $ 63 $ 

FSLIC Resolution Fund

The Treasury yield curve has 

flattened over the past 

year. Short-maturity yields have 

risen reflecting the Federal 

Reserve’s December 2015 hike 

in the federal funds target rate, 

as well as expectations for 

possible additional hikes over 

the medium term. However, 

longer-maturity yields have 

declined, reflecting declining 

long-term inflation expectations 

and potentially weaker 

economic growth prospects.
8

6/30/16 12/31/15 Change

Par Value $69,311 $62,973 $6,338

Amortized Cost $69,673 $63,368 $6,305

Total Market Value (including accrued interest) $70,457 $63,737 $6,720

Primary Reserve 1 $70,457 $63,737 $6,720

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) 1.30 1.65 -0.35

Effective Duration (in years)

 Total Portfolio 1.28 1.62 -0.34

 Available-for-Sale Securities 1.38 1.64 -0.26

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

6/30/16 12/31/15 Change

FRF-FSLIC

 Book Value 4 $828 $828 $0

 Yield-to-Maturity 0.18% 0.08% 0.10%

 Weighted Average Maturity overnight overnight no change

6/30/16 12/31/15 Change

Book Value 5 $8,765 $10,508 ($1,743)

Effective Annual Yield 0.46% 0.30% 0.16%

Weighted Average Maturity (in days) 80 90 (10)

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 presently assumes 

an average 2.0% 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 $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.

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

between December 31, 2016, and December 31, 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 third quarter of 2016.

Strategy Changes for the 3rd Quarter 2016

Investment Strategies

Strategy for the 2nd Quarter 2016

Strategy for the 2nd Quarter 2016

Strategy Changes for the 3rd Quarter 2016
10

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 $611,839 $602,815 99% ($9,024)

Outside Services - Personnel 244,306 110,466 104,430 95% (6,036)

Travel 98,897 48,372 44,865 93% (3,507)

Buildings 96,799 47,403 46,005 97% (1,398)

Equipment 85,419 44,961 33,309 74% (11,652)

Outside Services - Other 15,716 9,295 7,355 79% (1,940)

Other Expenses 14,869 6,943 6,211 89% (732)

Total Ongoing Operations $1,810,701 $879,279 $844,990 96% ($34,289)

Receivership Funding

Salaries & Compensation $61,080 $33,751 $28,085 83% ($5,666)

Outside Services - Personnel 296,955 134,302 99,816 74% (34,485)

Travel 8,207 4,103 1,690 41% (2,413)

Buildings 14,602 7,191 7,066 98% (125)

Equipment 1,452 826 850 103% 24

Outside Services - Other 1,900 739 523 71% (216)

Other Expenses 15,805 7,883 3,967 50% (3,916)

Total Receivership Funding $400,000 $188,795 $141,997 75% ($46,797)

Total FDIC Operating Budget $2,210,701 $1,068,074 $986,987 92% ($81,086)

Executive Summary of 2016 Budget and Expenditures

by Major Expense Category

Through June 30, 2016

(Dollars in Thousands)
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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.

Annual YTD YTD % of YTD YTD

Division/Office Budget Budget Expenditures Budget Used Variance

 FDIC Operating Budget 

 Risk Management Supervision $593,295 $289,493 $281,304 97% ($8,189)

 Resolutions & Receiverships 357,366 181,505 136,543 75% (44,962)

 Administration 274,243 131,491 126,361 96% (5,130)

 Legal 237,054 117,510 112,077 95% (5,433)

 Information Technology 216,586 113,307 103,605 91% (9,703)

 Depositor & Consumer Protection 178,813 87,741 85,521 97% (2,220)

 Insurance & Research 48,281 23,398 24,471 105% 1,073

 CIO Council 51,791 22,382 20,669 92% (1,713)

 Finance 39,827 19,776 19,318 98% (457)

 Inspector General 34,153 17,077 16,074 94% (1,003)

 Information Security & Privacy Staff 33,788 16,281 15,952 98% (329)

 Corporate University - Corporate 24,662 12,261 12,303 100% 42

 Executive Support 1 26,174 12,546 11,521 92% (1,025)

 Complex Financial Institutions 20,976 9,505 8,961 94% (544)

 Corporate University - CEP 18,070 8,229 7,738 94% (491)

 Executive Offices 2 11,381 5,572 4,570 82% (1,002)

 Corporate Unassigned 44,241 0 0 N/A 0

 Total FDIC Operating Budget $2,210,701 $1,068,074 $986,987 92% ($81,086)

Executive Summary of 2016 Budget and Expenditures

by Budget Component and Division/Office

Through June 30, 2016

(Dollars in Thousands)