Federal Deposit Insurance Corporation

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

November 5, 2015

MEMORANDUM TO: The Board of Directors

FROM: Steven O. App ~• ~~

Deputy to the C airman and ~~ ~

Chief Financial Officer

Craig R. Jarvill

Director, Division of Fina c

SUBJECT: Third Quarter 2015 CFO Report to the Board

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

September 30, 2015.

Executive Summary

During the third quarter of 2015, the DIF balance increased by $2.5 billion, from $67.6 billion to

$70.1 billion. This quarterly increase was primarily due to $2.2 billion of assessment revenue,

$122 million in interest on U.S. Treasury obligations, and a $578 million decrease in the

provision for insurance losses, partially offset by $410 million of operating expenses.

• During the third quarter of 2015, the FDIC was named receiver for one failed institution. The

assets at inception for this institution totaled $29 million with an estimated loss of $4 million.

The corporate cash outlay during the third quarter for this failure was approximately $7 million.

Through September 30, 2015, overall Corporate Operating Budget expenditures were below

budget by 9 percent ($155 million). Spending in the Ongoing Operations component was $98

million, or 7 percent, under budget, largely due to underspending in the salaries and

compensation, equipment, and contractual services major expense categories. Spending in

the Receivership Funding component was $56 million, or 16 percent, under budget, primarily

due to lower-than-budgeted contract expenses attributable to fewer bank failures and less

costly resolutions and to lower-than-anticipated asset management and marketing costs.
Corporate Fund Financial Results (See pages 6 - 7 for detailed data and charts.)

Deposit Insurance Fund

• For the nine months ending September 30, 2015, the DIF's comprehensive income totaled

$7.3 billion compared to comprehensive income of $7.1 billion for the same period last year.

This $206 million increase was primarily due to a $337 million increase in earnings (interest

and net unrealized gains) on U.S. Treasury obligations and a $61 million increase in

assessment revenue, partially offset by a $198 million increase in provision for losses.

Provision for insurance losses was a negative $1.3 billion as of the third quarter of 2015. The

negative provision primarily resulted from unanticipated recoveries of $884 million in litigation

settlements, professional liability claims, and tax refunds by the receiverships. Such

recoveries are not recognized until the cash is received since significant uncertainties

surround their recovery. Lower-than-expected estimated losses of $535 million for current year

failures also contributed to the negative provision for 2015.

Assessments

During September, the DIF recognized a total of $2.2 billion in assessment revenue,

representing the estimate for third quarter 2015 insurance coverage. Additionally, the DIF

recognized a net adjustment of $19 million that decreased assessment revenue. This

adjustment consisted of $7 million in prior period amendments and a $12 million decrease to

the estimate for second quarter 2015 insurance coverage recorded at June 30, 2015. The

latter adjustment was primarily due to lower than estimated assessment base.

On September 30, 2015, the FDIC collected $2.2 billion in DIF assessments for second

quarter 2015 insurance coverage.

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

DIF Investment Portfolio

On September 30, 2015, the total liquidity (also total market value) of the DIF investment

portfolio stood at $61.5 billion, up $9.2 billion from its December 31, 2014, balance of $52.3

billion. During the first three quarters of the year, interest revenue, receivership dividends, and

deposit insurance assessment collections exceeded resolution-related outlays and operating

expenses.

• On September 30, 2015, the DIF investment portfolio's yield was 0.83 percent, up 13 basis

points from its December 31, 2014, yield of 0.70 percent. The increase largely reflected the

new Treasury securities purchased during the first three quarters of the year generally having

considerably higher yields than the maturing securities' yields.

• In accordance with the approved third quarter 2015 DIF portfolio investment strategy, staff

purchased a total of 13 short- to intermediate-maturity conventional Treasury securities, all

designated as available-for-sale. The 13 securities had a total par value of $8.6 billion, a

weighted average yield of 0.85 percent, and a weighted average maturity of 2.04 years.

2
III. Budget Results (See pages 10 - 11 for detailed data.)

Approved Staffing Modifications

The 2015 Budget Resolution delegated to the CFO the authority to modify approved 2015 staffing

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

approved 2015 Corporate Operating Budget. The following changes were approved by the CFO

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

In August, the CFO approved an increase of seven non-permanent authorized positions in

Division of Risk Management and Supervision (RMS). Six positions were added to hire

one CM-1 Supervisory Examiner (IT) in each region. This increase provided for

appropriate Supervisory Examiner (IT) spans of control in all regions following the addition

of 30 new, non-permanent IT Examination Analyst positions at the beginning of 2015. In

addition, the CFO approved the addition of anon-permanent Section Chief position in the

Accounting and Securities Disclosure Section to handle the Chief Accountant's day-to-day

supervision and management responsibilities for the next three years while the Chief

Accountant is engaged in significant accounting policy issues related to the Basel Accords

and implementation of expected new standards from the Financial Accounting Standards

Board.

• In August, the CFO approved an increase of one non-permanent position for a Senior

Consumer Affairs Specialist in the Deposit and Consumer Protection (DCP) regional office

in Kansas City. This position was needed for temporarily elevated call center workload.

No reallocations of funds were made as there were sufficient funds to cover these positions in the

Ongoing Operations budgets of both divisions.

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, 2015, are

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

two 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 $2 million and

represents more than four 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 four of the seven major expense categories in

the Ongoing Operations component of the 2015 Corporate Operating Budget through the third

quarter.

Salaries and Compensation ($44 million, or 5 percent, less than budgeted). The most

significant variances in this expense category were in RMS ($17 million), the Legal Division

($5 million), the Division of Information Technology (DIT) ($3 million), the Division of

Administration (DOA) ($3 million), the Division of Resolutions and Receivership (DRR) ($3

million), and DCP ($3 million). Under spending in this expense category was largely

attributable to vacancies in budgeted positions.
Outside Services —Personnel ($16 million, or 9 percent, less than budgeted). DOA spent

$3 million less than budgeted, largely due to delays in the salary structure review project

and the nationwide rollout of the new badging system; and to lower-than-anticipated costs

for contracted administrative support services due to high turnover among contractor

employees and delays in bringing replacement contractor personnel on board. DIT spent

$2 million less than budgeted, primarily due to less than anticipated spending on the

Infrastructure Services Contract. The Information Security &Privacy Staff spent $2 million

less than budgeted, largely due to delays in completing new contract awards and

background investigations of new contractors. DRR spent $2 million less than budgeted

primarily due to delays in initiating projects in its Complex Financial Institutions and

Planning and Resource Management branches. Corporate University spent $1 million less

than budgeted primarily due to lower than projected expenditures for projects in the Dallas

Learning Center and the Schools of Corporate Operations, Leadership Development, and

Supervision. In addition, the combined Executive Support Offices spent $1 million less

than budgeted for contractual services on a number of smaller projects.

Equipment expenditures ($28 million, or 39 percent, less than budgeted). DIT spent $23

million less than budgeted, primarily because of delays in planned purchases of hardware

and software from its technical refresh allowance. Those purchases are now expected to

occur in the fourth quarter. In addition, DOA spent $4 million less than budgeted due to

lower than projected equipment costs associated with its new badging initiative, significant

savings realized from reusing instead of purchasing new furniture, and fluctuation in on-line

information services usage.

• Other Expenses ($2 million, or 19 percent, less than budgeted). This variance was mostly

due to underutilization of Professional Learning Accounts by employees and lower-thanprojected office supply purchases across the Corporation.

Receivership Fundin

The Receivership Funding component of the 2015 Corporate Operating Budget includes

funding for expenses that are incurred in conjunction with institution failures and the

management and disposition of the assets and liabilities of the ensuing receiverships, except

for salary and benefits and related expenses for permanent employees assigned to the

receivership management function.

There were significant spending variances in this budget component in three of the seven

major expense categories through the third quarter.

• Salaries and Compensation ($5 million, or 7 percent, less than budgeted). This variance

was largely attributable to early departures from term positions not being renewed.

• Outside Services-Personnel ($43 million, or 17 percent, less than budgeted). DRR spent

$37 million less than budgeted as resolutions, asset management and marketing costs

declined at a faster rate than projected. This resulted in lower than budgeted expenses for

contracts supporting Owned Real Estate, Loan Servicing, Loss Share Agreement

Monitoring, and Capital Markets.

• Other Expenses ($5 million, or 31 percent, less than budgeted). This variance was

attributable to the transfer of banking operations and the disposition of failed bank assets

more quickly than expected.
Significant Spending Variances by Division/Office

Nine organizations had significant spending variances through the end of the third quarter:

• DRR ($52 million, or 16 percent, less than budgeted). Approximately $47 million of this

under-spending was in the Receivership Funding Budget component due to lower than

anticipated resolutions and receivership expenses and workload.

• DIT ($31 million, or 17 percent, less than budgeted). This variance was largely

attributable to vacancies in budgeted positions, delays in hardware and software

purchases, and lower-than-budgeted support costs for failed financial institutions.

• RMS ($20 million, or 5 percent, less than budgeted). This variance was largely attributable

to vacancies in budgeted positions and lower than budgeted examination travel expenses

associated with those vacancies.

• DOA ($17 million, or 8 percent, less than budgeted). This variance was largely attributable

to lower than budgeted spending in its Ongoing Operations budget component for salaries

and compensation ($3 million) due to vacancies in budgeted positions; equipment ($4

million) due to less-than-budgeted expenses for the new badging initiative, furniture, and

online information services; buildings ($3 million) due to delays in the Student Residence

Center plumbing project and the data center air handler replacement project; and

contractual support ($3 million) due to delays in starting the salary structure review project

and the nationwide rollout of the new badging initiative. In addition, DOA spent

approximately $2 million less than budgeted in the Receivership Funding budget

component to support bank closings.

Legal Division ($12 million, or 6 percent, less than budgeted). This variance was due to

under-spending of approximately $7 million for salaries and compensation category ($5

million in the Ongoing Operations budget component and $2 million in the Receivership

Funding budget component) due to vacancies in budgeted non-permanent positions and

slower than projected hiring to fill those vacancies, and $5 million for outside counsel to

support receivership-related litigation.

• Office of Complex Financial Institutions ($3 million, or 22 percent, less than budgeted).

This variance was largely attributable to vacancies in budgeted positions and lower than

budgeted travel expenses associated with those vacancies.

• Information Security and Privacy Staff ($3 million or 13 percent less than budgeted). This

variance was primarily attributable to delays in completing new contract awards and

background investigations of new contractors.

• Office of Inspector General ($3 million, or 11 percent, less than budgeted). This variance

was attributable to vacancies in budgeted positions and slower than expected hiring to fill

those vacancies.

• The Executive Support Offices ($2 million, or 11 percent, less than budgeted). This

variance was mostly attributable to slower-than-projected hiring to fill vacant positions and

lower-than-budgeted spending for contract services.

5
FDIC CFO REPORT TO THE BOARD – Third Quarter 2015 

Fund Financial Results ($ in Millions) 

6

Balance Sheet

Unaudited Unaudited Quarterly Unaudited Year-Over-Year

Sep-15 Jun-15 Change Sep-14 Change

Cash and cash equivalents 2,450 $ 2,544 $ (94) $ 2,115 $ 335 $ 

Investment in U.S. Treasury obligations, net 58,552 55,850 2,702 47,783 10,769 

Assessments receivable, net 2,188 2,177 11 2,072 116 

Interest receivable on investments and other assets, net 534 590 (56) 382 152 

Receivables from resolutions, net 13,877 14,862 (985) 15,227 (1,350) 

Property and equipment, net 359 364 (5) 357 2 

Total Assets $ 76,387 77,960 $ 1,573 $ 67,936 $ 10,024 $ 

Accounts payable and other liabilities 351 278 73 255 96 

Liabilities due to resolutions 6,727 7,593 (866) 11,260 (4,533) 

Postretirement benefit liability 243 243 - 194 49 

Contingent liability for anticipated failures 524 684 (160) 1,902 (1,378) 

Contingent liability for litigation losses 0 0 0 5 (5) 

Total Liabilities $ 8,798 7,845 $ (953) $ 13,616 $ (5,771) $ 

FYI: Unrealized gain (loss) on U.S. Treasury investments, net 312 248 64 27 285 

FYI: Unrealized postretirement benefit (loss) gain (58) (58) - (16) (42) 

Fund Balance $ 67,589 70,115 $ 2,526 $ 54,320 $ 15,795 $ 

Deposit Insurance Fund

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 YTD $201 million decrease  in the

receivership’s shared‐loss liability is

attributable to lower‐than‐anticipated

losses from terminated SLAs.

The  YTD $884 million in

unanticipated recoveries from failed

financial institutions (litigation

settlements, professional liability

claims, and tax refunds) are not

recognized until the cash is received

since significant uncertainties

surround their recovery.

The YTD negative $263 million

adjustment resulted from an increase

in legal and rep & warranty reserves

and lower loan recovery rates.

Positive Impact on the Fund Balance from the 2015 Adjustments 

to Estimated Losses for Failed Banks (Dollars in Millions)
~

• • •.

Assessments

•~

$ 6,687 $

~•.~

4,517 $ 2,170 $ 6,626 $ 61

Interest on U.S. Treasury obligations 295 173 122 212 83

Other re~nue 15 10 5 22 (7)

Total Revenue $ 6,997 $ 4,700 $ 2,297 $ 6,860 $ 137

Operating expenses 1,240 830 410 1,256 (16)

Provision for insurance losses (1,321) (743) (578) (1,519) 198

Insurance and other expenses 4 1 3 1 3

Total Expenses and Losses $ (77) $ 88 $ (165) $ (262) $ 185

Net Income 7,074 4,612 $ 2,462 7,122 (48)

Unrealized gain (loss) on U.S. Treasury in~stments, net 261 197 64 7 254

Unrealized postretirement benefit gain (loss) - -

Comprehensive Income $ 7,335 $ 4,809 $ 2,526 $ 7,129 $ 206

-. ..

Cash and cash equivalents $

-.

872 $ 872

.-

$ -

-.

$ 871 $

.-

1

Accumulated deficit (124,642) (124,523) (119) (124,461) (181)

Total resolution equity 872 872 - 872 -

Total re~nue 2 2 1 1

Operating expenses 2 1 1 1 1

Provision for losses - - - (1) 1

Goodwill litigation expenses 182 63 119 - 182

Net Income (Loss) $ (182) $ (63) (119) $ - $ (182)

$ in millions

Sep-15

~

Sep-14 Change Sep-15

~ ~

Sep-14 Change Sep-15 Sep-14 Change

Total Receiverships 470 487 (17) - - - 470 487 (17)

Assets in Liquidation $ 5,447 $ 8,336 $ (2,889) $ 5 $ 5 $ - $ 5,452 $ 8,341 $ (2,889)

YTD Collections $ 2,511 $ 4,036 $ (1,525) $ 2 $ 2 $ - $ 2,513 $ 4,038 $ (1,525)

YTD Dividend/Other Pymts -Cash $ 5,388 $ 3,311 $ 2,077 $ - $ - $ - $ 5,388 $ 3,311 $ 2,077

Disposition of Assets at Receivership Inception'

(January 1, 2008 to September 30, 2015)

Assets remaining

Covered assets 

with receiverships

at Se tember 30, 

at September 30,

P 2015 = $56

2015 = $36B

Retained by

Receiverships, $798

Covered Pssets Under 204'0

Shared-Loss

Agreements, 5216B

5690

Assets Passed to

Acquirer et Inception

(excluding assets

covered under SharedLoss)

$95B

244b

Total Assets Resolved

$3908 (from 512

receiverships)

'Excludes WAMU with total assets of $299 billion and zero estimated losses to the DI F
~. _ -

9/30/15 12/31/14 Change

Par Value $60,096 $50,739 $9,357

Amortized Cost $60,672 $51,655 $9,017

Total Market Value (including accrued interest) $61,469 $52,302 $9,167

Primary Reserve' $61,469 $52,302 $9,167

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

Yield-to-Maturity 2 0.83% 0.70% 0.13%

Weighted Average Maturity (in years) 1.50 1.66 -0.16

Effective Duration (in years)

Total Portfolio 1.47 1.63 -0.16

Available-for-Sale Securities 1.53 1.69 -0.16

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

~ Primary Reserve is the total marketvalue (including accrued interest) of overnight investments, all available-for-sale

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

Z Thereld-to-Maturity includes the potential yield of Treasurylnflation-Protected Securities (TIPS), which presently assumes

an average 1.8%annual increase in the CPI overthe remaining life of each TIPS.

3 1n early August 2008, managementreclassified all of the DIF portfolio's HTMsecurities 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.

~• - •

9/30/15 12/31/14 Change

FRF-FSLI C

Book Value 4 $828 $827 $1

Yield-to-Maturity 0.00% 0.03% -0.03%

Weighted Average Maturity overnight overnight no change

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

purposes.

t• - •

9/30/15 12/31/14 Change

Book Value 5 $10,548 $14,139 ($3,591)

Effective Annual Yield 0.19% 0.11% 0.08%

Weighted Average Maturity (in days) 81 75 6

5 Due to the short-term nature of the NLF portfolio, its Book and Market Values are identical for reporting purposes.
DEPOSIT INSURANCE FUND Strategy for the 3rd Quarter 2015

Purchase up to $11 billion (par value) of Treasurysecurities with maturitydates

between December 31, 2015, and December 31, 2020, subjectto the following

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

shall consistofTreasurylnflation-Protected Securities (TIPS).

Strategy Changes for the 4th Quarter 2015

Purchase up to $11 billion (par value) of Treasury securities with maturitydates

between March 31, 2016, and March 31, 2021, subject to the following additional

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

(AFS); and no more than $2 billion (adjusted par value) ofsuch securities shall

consist of Treasury Inflation-Protected Securities (TIPS).

NATIONAL LIQUIDATION FUND Strategy for the 3rd Quarter 2015

Maintain an overnight deposittargetfloorbalancewithin a range of$100 million to

$300 million.

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

Strategy Changes for the 4th Quarter 2015

No strategy changes for the fourth quarter of 2015.
~ . ~ ~- -~~

1~ ~ ~

Annual YTD YTD % ofYTD YTD

Major Expense Category Budget Budget Expenditures Budget Used Variance

Corporate Operating Budget

Ongoing Operations

Salaries &Compensation $1,226,834 $907,285 $862,816 95% ($44,469)

Outside Services -Personnel 252,177 175,339 159,692 91% (15,647)

Travel 98,816 73,954 70,759 96% (3,195)

Buildings 94,330 69,918 67,107 96% (2,811)

Equipment 87,259 72,462 44,181 61% (28,281)

Outside Services -Other 17,420 12,870 11,367 88% (1,503)

Other Expenses 16,861 11,683 9,407 81% (2,276)

Total Ongoing Operations $1,793,697 $1,323,510 $1,225,329 93% ($98,181)

Receivership Funding

Salaries &Compensation $90,360 $70,525 $65,330 93% ($5,195)

Outside Services -Personnel 376,053 246,536 203,914 83% (42,622)

Travel 9,083 6,443 5,509 85% (934)

Buildings 17,328 13,020 12,480 96% (540)

Equipment 5,285 3,909 3,455 88% (454)

Outside Services -Other 4,044 2,886 1,601 55% (1,285)

Other Expenses 22,847 17,117 11,815 69% (5,302)

Total Receivership Funding $525,000 $360,437 $304,104 84°/a ($56,333)

Total Corporate Operating Budget $2,318,697 $1,683,947 $1,529,433 91% ($154,514)

10
• C •~- • •• - ~ t • •

t• • •

Annual YTD YTD

Division/Office Budget Budget Expenditures

% of YTD

Budget Used

YTD

Variance

Corporate Operating Budget

Risk Management Supervision $574,424 $426,171 $406,001 95% ($20,170)

Resolutions &Receiverships 437,511 330,160 277,864 84°/a (52,296)

Administration 268,572 201,417 184,329 92°/o (17,088)

Legal 253, 978 188, 806 177, 068 94% (11, 738)

Information Technology 226,289 175,655 145,015 83% (30,640)

Depositor &Consumer Protection 172,111 128,914 124,700 97% (4,214)

CIO Council 52,553 37,747 37,912 100% 164

Insurance &Research 51,146 38,223 36,593 96% (1,630)

Finance 39,832 29,645 27,809 94% (1,836)

Inspector General 33,715 25,243 22,495 89% (2,748)

Information Security &Privacy Staff 33,856 24,831 21,565 87% (3,266)

Corporate University -Corporate 25,681 18,947 17,415 92% (1,533)

Executive Support' 26,248 19,395 17,221 89% (2,174)

Corporate University -CEP 18,270 13,817 13,620 99°/o (197)

Complex Financial Institutions 21,863 15,994 12,497 78% (3,497)

Executive Offices Z 12,118 8,981 7,330 82% (1,651)

Corporate Unassigned 70,529 0 0 N/A 0

Total, Corporate Operating Budget $2,318,697 $1,683,947 $1,529,433 91°/a ($154,514)

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.

11