Federal Deposit Insurance Corporation

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

 November 18, 2014

MEMORANDUM TO: The Board of Directors

FROM: Steven O. App

Deputy to the Chairman and 

Chief Financial Officer

Craig R. Jarvill

Director, Division of Finance

SUBJECT: Third Quarter 2014 CFO Report to the Board 

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

September 30, 2014. 

Executive Summary

• During the third quarter of 2014, the DIF balance increased by $3.2 billion, from $51.1 billion at 

June 30, 2014 to an all-time high of $54.3 billion. The previous high point of the DIF was at 

the end of the first quarter 2008 with a balance of $52.8 billion. The quarterly increase was

primarily due to $2.0 billion of assessment revenue and a $1.7 billion decrease in the provision 

for insurance losses, partially offset by $406 million of operating expenses. 

• During the third quarter of 2014, the FDIC was named receiver for 2 failed institutions. The 

combined assets at inception for these institutions totaled $238 million with a total estimated 

loss of $48 million. The corporate cash outlay during the third quarter for these failures was 

approximately $86 million.

• Through September 30, 2014, overall Corporate Operating Budget expenditures were below 

budget by 10 percent ($170 million). Spending in the Ongoing Operations component was 

$119 million, or 9 percent, under budget, largely due to underspending in the salaries and 

compensation, contractual services, and equipment categories. The variance in the 

Receivership Funding component was $51 million, or 11 percent, under budget, primarily due 

to lower-than-budgeted contract expenses attributable to less costly resolutions, and lowerthan-anticipated asset management and marketing costs.
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I. Corporate Fund Financial Results (See pages 7 - 8 for detailed data and charts.)

Deposit Insurance Fund

• For the nine months ending September 30, 2014, the DIF’s comprehensive income totaled 

$7.129 billion compared to comprehensive income of $7.800 billion for the same period last 

year. This $671 million decrease was mostly due to an $884 million decrease in assessment 

revenue and an $83 million increase in operating expenses that was partially offset by a $448 

million decrease in the provision for insurance losses.

• The provision for insurance losses was a negative $1.5 billion for 2014. The negative 

provision for 2014 primarily resulted from a decrease of $2.5 billion in the estimated losses for 

institutions that failed in prior years, partially offset by an increase of $918 million in the 

contingent liability for anticipated failures.

The $2.5 billion reduction in the estimated losses from failures was primarily attributable to two

components. The first component was unanticipated recoveries of $1.6 billion in litigation 

settlements, professional liability claims, and tax refunds by the receiverships, which are not 

recognized until the cash is received since significant uncertainties surround their recovery. 

The second component was asset recoveries that exceeded projections and higher valuations 

on remaining receivership assets totaling $1.1 billion.

Assessments

• During September, the DIF recognized a total of $2.0 billion in assessment revenue. Of this 

amount, the estimate for third quarter 2014 insurance coverage totaled $2.1 billion. 

Additionally, the DIF recognized a net adjustment of $63 million that decreased assessment 

revenue. This adjustment consisted of an $18 million decrease from prior period amendments 

and a $45 million decrease to the estimate for second quarter 2014 insurance coverage 

recorded at June 30, 2014. The latter adjustment was primarily due to lower than estimated 

rates for large institutions.

• On September 30, 2014, the FDIC collected $2.1 billion in DIF assessments for second 

quarter 2014 insurance coverage. 

II. Investment Results (See pages 9 - 10 for detailed data and charts.)

DIF Investment Portfolio

• On September 30, 2014, the total liquidity (also total market value) of the DIF investment 

portfolio stood at $50.2 billion, higher than its December 31, 2013, balance of $42.5 billion. 

During the first three quarters of 2014, interest revenue, receivership dividends, and deposit 

insurance assessment collections exceeded resolution-related outlays and operating 

expenses.

• On September 30, 2014, the DIF investment portfolio’s yield was 0.68 percent, up 23 basis 

points from its December 31, 2013, yield of 0.45 percent. Two factors primarily contributed to 

the increase. During the nine-month period, newly purchased Treasury securities generally 

had higher yields than maturing securities. Low yielding overnight investments comprised a 

smaller percentage of the portfolio at period end.
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• In accordance with the approved third quarter 2014 DIF portfolio investment strategy, staff 

purchased a total of 18 short- to intermediate-maturity conventional Treasury securities, all

designated as available-for-sale (AFS). The 18 securities had a total par value of $7.0 billion, 

a weighted average yield of 0.90 percent, and a weighted average maturity (WAM) of 2.58 

years.

III. Budget Results (See pages 11 – 12 for detailed data.)

Approved Budget Modifications

The 2014 Budget Resolution delegated to the Chief Financial Officer (CFO) and selected other 

officials the authority to make certain modifications to the 2014 Corporate Operating Budget. The 

following budget reallocations were approved during the third quarter in accordance with the authority 

delegated by the Board of Directors. None of these modifications changed the total 2014 Corporate 

Operating Budget as approved by the Board in December 2013:

• In September, the CFO approved the reallocation of $800,000 in budget authority in the 

Salaries and Compensation expense category within the Ongoing Operations component from 

the Division of Insurance and Research (DIR) to the Office of Communications (+$100,000), 

the Office of Corporate Risk Management (+$100,000), and Corporate University - Corporate 

Employee Program (+$600,000), for salary and fringe benefit costs that were greater than 

previously projected.

• In September, the CFO also separately approved the reallocation of $168,128 in budget 

authority within the Ongoing Operations budget from the Corporate Unassigned reserve to the 

Division of Depositor and Consumer Protection (DCP) to provide funding for FDIC-sponsored 

conference costs.

Following these reallocations, the amounts remaining available within the Corporate Unassigned 

budgets for the Ongoing Operations and Receivership Funding budget components were $28,842,810 

and $2,742,619, respectively. 

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, 2014, 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 all major expense categories in the Ongoing Operations 

component of the 2014 Corporate Operating Budget through the third quarter.

• Salaries and Compensation ($49 million, or 5 percent, less than budgeted). The most 

significant variances in this expense category were in the Division of Risk Management 

Supervision (RMS) ($16 million), the Legal Division ($7 million), the Division of Information 

Technology (DIT) ($4 million), the Division of Resolutions and Receivership (DRR) ($4 million),
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DCP ($3 million), and DIR ($3 million). Under spending in this expense category was largely 

attributable to vacancies in budgeted positions.

• Outside Services – Personnel ($29 million, or 16 percent, less than budgeted). The Division of 

Administration (DOA) spent $7 million less than budgeted, largely due to lower-thananticipated expenses for the nationwide print-shop and mail-room services contract; delays in 

starting the workforce development initiative; lower-than-anticipated contract costs resulting 

from high turnover among contractor employees and delays in completing background 

investigations of replacement employees; and delays in expenses associated with the 

nationwide rollout of the Identity Credentials and Access Management initiative. The CIO 

Council spent $5 million less than budgeted, largely due to lower-than-planned spending on 

discretionary systems development projects and the Information Management and 

Compliance (IMAC) project. DRR spent $4 million less than budgeted for planning related to 

the possible orderly liquidation of a systemically important financial institution. The Legal 

Division spent $3 million less than budgeted, largely due to lower-than-projected expenses 

related to FOIA and Privacy Act requests, defensive litigation, and other legal fees. In 

addition, Corporate University-Corporate (CU-Corporate) spent $2 million less than budgeted, 

largely due to lower-than-projected expenses for various training and development projects.

• Travel expenditures ($10 million, or 13 percent, less than budgeted). This variance was 

largely due to vacancies in non-permanent field examination positions in RMS and DCP that 

led to lower-than-projected regular duty and relocation travel expenses. Spending in this 

category by the Office of Complex Financial Institutions (OCFI) was also $1 million lower than 

anticipated for regular duty travel and relocation costs.

• Building expenditures ($6 million, or 8 percent, less than budgeted). This variance was largely 

due to delays in the Student Residence Center pipe replacement project and various office 

moves and lower-than-projected expenses related to field office lease renewals. Some of 

these expenses are expected to be incurred later in the year.

• Equipment expenditures ($20 million, or 32 percent, less than budgeted). DIT spent $14

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

software, including hardware/software from its technical refresh allowance. Those purchases 

are expected to occur in the fourth quarter. In addition, DOA spent $6 million less than 

budgeted due to intentional deferral of furniture purchases until later in the year.

• Outside Services – Other expenditures ($2 million, or 16 percent, less than budgeted). 

This variance was largely due to lower-than-budgeted insurance premiums, catering expenses 

for conferences, and costs for mail related services.

• Other Expenses ($3 million, or 25 percent, less than budgeted). This variance was mostly due 

to substantial underutilization of the Professional Learning Accounts by employees and lowerthan-projected corporate office supply purchases by DOA.

Receivership Funding

The Receivership Funding component of the 2014 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 four of the seven major 

expense categories through the third quarter.
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• Outside Services-Personnel ($44 million, or 15 percent, less than budgeted). This variance 

was attributable to less costly resolutions expenses and lower-than-anticipated asset 

management and marketing costs incurred under contracts for receivership assistance, due 

diligence, owned real estate management, loan servicing, review of shared-loss agreements,

and securitizations.

• Travel ($3 million, or 36 percent, less than budgeted). This variance was attributable to lowerthan-budgeted failed bank activity.

• Buildings ($6 million, or 29 percent, less than budgeted). This variance was attributable to 

lower-than-budgeted failed bank activity.

• Other Expenses ($9 million, or 49 percent, more than budgeted). This variance was due to

$10 million paid in conjunction with receivership litigation judgments. 

Significant Spending Variances by Division/Office1

Fourteen organizations had significant spending variances through the end of the third quarter 2014:

• DRR ($40 million, or 10 percent, less than budgeted). Approximately $32 million of this under 

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

resolutions and receivership expenses and workload.

• DIT ($25 million, or 14 percent, less than budgeted). This variance was largely attributable to 

delays in hardware and software purchases, lower-than-budgeted support costs for failed 

financial institutions, and vacancies in budgeted positions.

• DOA ($26 million, or 13 percent, less than budgeted). This variance was largely attributable to 

lower-than-anticipated expenses in the Outside Services-Personnel, Buildings, and Equipment 

expense categories, as previously explained.

• Legal Division ($22 million, or 10 percent, less than budgeted). This variance was due to 

under spending of approximately $12 million in the Outside Services – Personnel category, 

largely due to lower-than-projected outside counsel expenses for receivership-related 

litigation, and $10 million in the Salaries and Compensation category ($7 million in the 

Ongoing Operations budget component and $3 million in the Receivership Funding budget 

component), mostly due to vacancies in budgeted non-permanent positions and slower-thanprojected hiring to fill those vacancies.

• RMS ($21 million, or 5 percent, less than budgeted). This variance was largely attributable to 

vacancies in budgeted non-permanent field examination positions and lower-than-budgeted 

examination travel expenses associated with those vacancies.

• DCP ($6 million or 5 percent less than budgeted). This variance was primarily attributable to 

vacancies in budgeted field examination and Washington office positions and lower-thanbudgeted spending for regular duty and relocation travel associated with those vacancies.

 1 Information on division/office variances reflects variances in both the Ongoing Operations and Receivership 

Funding components of the 2014 Corporate Operating Budget.
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• CIO Council ($5 million, or 11 percent, less than budgeted). This variance was largely due to 

lower-than-planned spending on discretionary systems development projects and the IMAC 

project.

• DIR ($5 million, or 14 percent, less than budgeted). This variance was primarily attributable to

vacancies in budgeted positions and slower-than-projected hiring to fill those vacancies.

• OCFI ($4 million, or 26 percent, less than budgeted). This variance was largely attributable to 

vacancies in budgeted positions and lower-than-budgeted spending for contractual services

and relocation travel.

• The combined Executive Support Offices ($4 million, or 9 percent, less than budgeted). This 

variance was mostly attributable to slower-than-projected hiring to fill budgeted positions in the 

Office of Minority and Women Inclusion and the Office of the Ombudsman.

• CU-Corporate ($3 million, or 17 percent, less than budgeted). This variance was primarily due 

to lower-than-budgeted expenses for various training and development projects and vacancies 

in permanent positions.

• OIG ($3 million, or 13 percent, less than budgeted). This variance was attributable to

vacancies in budgeted positions and lower-than-projected travel expenses.

• The Division of Finance (DOF) ($2 million, or 8 percent, less than budgeted). This variance 

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

those vacancies. 

• The Executive Offices ($2 million, or 21 percent, less than budgeted). This variance included 

approximately $2 million in under spending for Outside Services-Personnel due to lower than 

anticipated expenses to date for the GAO audit work.
FDIC CFO REPORT TO THE BOARD – Third Quarter 2014 

Fund Financial Results ($ in Millions) 

7

Estimated

Assessment revenue 

has been decreasing 

due to lower effective 

assessment rates, 

which reflect the 

improving health of 

the banking industry.

Balance Sheet

Unaudited Unaudited Quarterly Unaudited Year-Over-Year

Sep-14 Jun-14 Change Sep-13 Change

Cash and cash equivalents $ 2,115 $ 2,409 $ (294) $ 5,330 $ (3,215)

Investment in U.S. Treasury obligations, net 47,783 45,416 2,367 32,729 15,054

Assessments receivable, net 2,072 2,204 (132) 2,391 (319)

Interest receivable on investments and other assets, net 382 577 (195) 409 (27)

Receivables from resolutions, net 15,227 14,211 1,016 16,938 (1,711)

Property and equipment, net 357 359 (2) 373 (16)

Total Assets $ 67,936 $ 65,176 $ 2,760 $ 58,170 $ 9,766

Accounts payable and other liabilities 255 256 (1) 265 (10)

Liabilities due to resolutions 11,260 12,169 (909) 15,754 (4,494)

Postretirement benefit liability 194 194 - 224 (30)

Contingent liability for anticipated failures 1,902 1,493 409 1,164 738

Contingent liability for litigation losses 5 5 - 5 -

Total Liabilities $ 13,616 $ 14,117 $ (501) $ 17,412 $ (3,796)

FYI: Unrealized gain (loss) on U.S. Treasury investments, net 27 118 (91) 39 (12)

FYI: Unrealized gain (loss) on trust preferred securities - - - - -

FYI: Unrealized postretirement benefit (loss) gain (16) (16) - (61) 45

Fund Balance $ 54,320 $ 51,059 $ 3,261 $ 40,758 $ 13,562

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

Income Statement (year-to-date)

Unaudited Unaudited Quarterly Unaudited Year-Over-Year

Sep-14 Jun-14 Change Sep-13 Change

Assessments $ 6,626 $ 4,617 2,009 $ 7,510 $ (884)

Interest on U.S. Treasury obligations 212 132 80 79 133

Realized gain on sale of trust preferred securities - - - 458 (458)

Other revenue 22 15 7 156 (134)

Total Revenue $ 6,860 $ 4,764 2,096 $ 8,203 $ (1,343)

Operating expenses 1,256 850 406 1,173 83

Provision for insurance losses (1,519) 144 (1,663) (1,071) (448)

Insurance and other expenses 1 - 1 4 (3)

Total Expenses and Losses $ (262) $ 994 (1,256) $ 106 $ (368)

Net Income 7,122 3,770 3,352 8,097 (975)

Unrealized gain (loss) on U.S. Treasury investments, net 7 98 (91) 5 2

Unrealized gain (loss) on trust preferred securities - - - (302) 302

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

Comprehensive Income $ 7,129 $ 3,868 3,261 $ 7,800 $ (671)

Deposit Insurance Fund

Selected Financial Data

Unaudited Unaudited Quarterly Unaudited Year-Over-Year

Sep-14 Jun-14 Change Sep-13 Change

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

Accumulated deficit (124,461) (124,460) (1) (124,459) (2)

Total resolution equity 872 873 (1) 874 (2)

Total revenue 1 1 - 2 (1)

Operating expenses 1 1 - 1 -

Goodwill litigation expenses - - - 1 (1)

Provision for losses (1) (1) - (3) 2

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

FSLIC Resolution Fund

Receivership Selected Statistics September 2014 vs. September 2013

$ in millions

Sep-14 Sep-13 Change Sep-14 Sep-13Change Sep-14 Sep-13 Change

Total Receiverships 487 482 5 - 2 (2) 487 484 3

Assets in Liquidation $ 8,336 $13,783 $ (5,447) $ 5 $ 6 $ (1) $ 8,341 $ 13,789 $ (5,448)

YTD Collections $ 4,036 $ 5,483 $ (1,447) $ 2 $ 3 $ (1) $ 4,038 $ 5,486 $ (1,448)

YTD Dividend/Other Pymts - Cash $ 3,311 $ 3,173 $ 138 $ - $ - $ - $ 3,311 $ 3,173 $ 138

DIF FRF ALL FUNDS
9

9/30/14 12/31/13 Change

Par Value $48,750 $40,682 $8,068

Amortized Cost $49,858 $42,025 $7,833

Total Market Value (including accrued interest) $50,200 $42,461 $7,739

Primary Reserve 1 $50,200 $42,461 $7,739

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

Yield-to-Maturity 2 0.68% 0.45% 0.23%

Weighted Average Maturity (in years) 1.75 1.41 0.34

Effective Duration (in years)

 Total Portfolio 1.72 1.36 0.36

 Available-for-Sale Securities 1.79 1.49 0.30

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

9/30/14 12/31/13 Change

FRF-FSLIC

 Book Value 4 $827 $826 $1

 Yield-to-Maturity 0.01% 0.01% 0.00%

 Weighted Average Maturity overnight overnight no change

9/30/14 12/31/13 Change

Book Value 5 $13,276 $13,657 ($381)

Effective Annual Yield 0.10% 0.10% 0.00%

Weighted Average Maturity (in days) 62 62 0

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 securities, and heldto-maturity 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.

5

 Due to the short-term nature of the NLF, the portfolio's 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.
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DEPOSIT INSURANCE FUND

Purchase up to $9 billion (par value) of Treasury securities with maturity dates between 

December 31, 2014, and December 31, 2019, subject to the following additional provisions: 

all newly purchased securities will be designated as available-for-sale (AFS); and no more 

than $3 billion (adjusted par value) of such securities shall consist of Treasury InflationProtected Securities (TIPS).

Purchase up to $8 billion (par value) of Treasury securities with maturity dates between March 

31, 2015, and March 31, 2020, 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) of such securities shall consist of Treasury Inflation-Protected 

Securities (TIPS).

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 fourth quarter of 2014.

Strategy Changes for 4th Quarter 2014

Investment Strategies

Strategy for 3rd Quarter 2014

Strategy for the 3rd Quarter 2014

Strategy Changes for 4th Quarter 2014
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Annual YTD YTD % of YTD YTD

Major Expense Category Budget Budget Expenditures Budget Used Variance

Corporate Operating Budget 

Ongoing Operations

Salaries & Compensation $1,206,502 $897,357 $848,366 95% ($48,991)

Outside Services - Personnel 268,734 188,367 159,066 84% (29,301)

Travel 105,770 76,943 66,791 87% (10,152)

Buildings 89,155 65,578 60,060 92% (5,518)

Equipment 86,042 62,270 42,233 68% (20,037)

Outside Services - Other 18,152 13,729 11,589 84% (2,140)

Other Expenses 17,097 12,134 9,082 75% (3,052)

Total Ongoing Operations $1,791,452 $1,316,378 $1,197,187 91% ($119,191)

Receivership Funding

Salaries & Compensation $124,532 $96,453 $92,633 96% ($3,820)

Outside Services - Personnel 400,107 299,851 255,917 85% (43,934)

Travel 10,414 8,472 5,437 64% (3,035)

Buildings 28,580 21,898 15,652 71% (6,246)

Equipment 7,745 3,076 1,811 59% (1,265)

Outside Services - Other 4,999 3,911 2,700 69% (1,211)

Other Expenses 23,623 17,758 26,385 149% 8,627

Total Receivership Funding $600,000 $451,420 $400,535 89% ($50,885)

Total Corporate Operating Budget $2,391,452 $1,767,798 $1,597,722 90% ($170,076)

Executive Summary of 2014 Budget and Expenditures

by Major Expense Category

Through September 30, 2014

(Dollars in Thousands)
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Annual YTD YTD % of YTD YTD

Division/Office Budget Budget Expenditures Budget Used Variance

 Corporate Operating Budget 

 Risk Management Supervision $566,194 $422,689 $401,338 95% ($21,351)

 Resolutions & Receiverships 505,484 383,918 343,657 90% (40,262)

 Legal 299,292 224,309 202,104 90% (22,205)

 Administration 269,405 201,796 175,539 87% (26,257)

 Information Technology 238,051 174,360 149,804 86% (24,557)

 Depositor & Consumer Protection 169,231 127,108 120,783 95% (6,325)

 CIO Council 59,237 44,713 39,841 89% (4,872)

 Executive Support 1 56,170 41,157 37,352 91% (3,805)

 Insurance & Research 47,871 34,910 30,071 86% (4,839)

 Finance 40,050 29,794 27,484 92% (2,310)

 Inspector General 33,698 25,245 21,948 87% (3,297)

 Corporate University - Corporate 24,717 18,839 15,681 83% (3,157)

 Corporate University - CEP 17,442 13,392 12,716 95% (676)

 Complex Financial Institutions 21,388 16,107 11,972 74% (4,135)

 Executive Offices 2 11,637 9,460 7,432 79% (2,028)

 Corporate Unassigned 31,585 0 0 N/A 0

 Total, Corporate Operating Budget $2,391,452 $1,767,798 $1,597,722 90% ($170,076)

Executive Summary of 2014 Budget and Expenditures

by Budget Component and Division/Office

Through September 30, 2014

(Dollars in Thousands)

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

Corporate Risk Management, and Information Security and Privacy Staff.

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, Chief Information Officer.