1

Federal Deposit Insurance Corporation 

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

 

 April 30, 2007 

MEMORANDUM TO: The Board of Directors 

FROM: Steven O. App 

Deputy to the Chairman and 

 Chief Financial Officer 

Frederick S. Selby 

Director, Division of Finance 

SUBJECT: First Quarter 2007 CFO Report to the Board 

The attached report highlights the Corporation's financial activities and results for the three-month 

period ending March 31, 2007. 

Executive Summary

 

• The Deposit Insurance Fund (DIF) fund balance grew by 1.2 percent to $50.7 million during 

the first quarter of 2007, equaling the same percentage increase for the comparable period in 

2006. DIF’s comprehensive income for the first quarter of 2007 was slightly lower compared 

to a year ago ($580 million vs. $596 million). However, if the one-time adjustment for exit 

fees earned of $346 million is excluded from the 2006 results, DIF’s first quarter 2007 

comprehensive income rose by $330 million, or 132 percent. This increase resulted primarily 

from higher assessment revenue ($89 million), an increase in interest revenue ($89 million), 

and a higher contribution to the year-to-date comprehensive income from unrealized gain/(loss) 

on available-for-sale (AFS) securities ($138 million). 

• In February 2007, the FDIC was appointed receiver of Metropolitan Savings Bank, Pittsburgh, 

PA (total assets of $15.8 million), which was the first FDIC-insured bank failure in over two 

and one-half years. The DIF disbursed $17.3 million to cover obligations to insured depositors 

of the failed bank and recorded an allowance for loss of $2.5 million against this receivable. 

This estimated loss is likely to substantially increase based on a further review of the 

institution’s unrecorded assets and liabilities. 

• For the three months ending March 31, 2007, Corporate Operating and Investment Budget 

related expenditures ran below budget by 12 percent and 31 percent, respectively. The variance 

with respect to the Corporate Operating Budget expenditures was primarily the result of limited 

resolutions and receivership activities in the Receivership Funding component of the budget 

through the first quarter. Detailed quarterly reports are provided separately to the Board by the 

Capital Investment Review Committee 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 first quarter of 2007, DIF’s net receivables from resolutions 

declined by $108 million, or 20 percent, to $431 million. This reduction is 

primarily due to collections from receiverships totaling $112 million to 

repay payments made by the DIF to cover the obligations to insured 

depositors ($56 million from Superior Bank, $33 million from Hamilton 

Bank, and $23 million from Southern Pacific Bank) that was partially offset 

by the recordation of a $15 million net receivable from the failure of 

Metropolitan Savings Bank. By year-end 2007, absent any new, substantial 

failure activity, DIF’s net receivables from resolutions is expected to further 

decline by approximately $142 million, or 33 percent, to $289 million, 

assuming favorable resolution of various receivership asset dispositions, 

litigation efforts, and payment of dividends. 

II. Investments • The DIF portfolio’s par value increased by 1.22 percent during the first 

quarter of 2007, and totaled $47.051 billion on March 31, 2007. Moreover, 

while the securities that were purchased during this period had slightly 

lower yields than maturing securities, this factor was more than offset by 

higher yielding overnight investments. Consequently, the DIF portfolio’s 

yield increased by three basis points during the first quarter of 2007, rising 

to 4.92 percent as of March 31, 2007, from 4.89 percent as of December 31, 

2006. 

• Expectations are for Treasury market yields to continue to trade generally 

within the range exhibited during the first quarter of 2007, but with the 

potential for a modest rise from quarter-end levels. This, coupled with a 

growing DIF portfolio balance, should lead to increased interest revenue 

over the long run. Over the short run, any increase in yields will accelerate 

the erosion of existing net unrealized gains on available-for-sale (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). 
3

Trends and Outlook

Financial Results Comments 

III. Budget • Approximately $227 million was spent in the Ongoing Operations 

component of the 2007 Corporate Operating Budget, which was $16 

million (7 percent) below the budget for the three months ending March 

31, 2007. The Outside Services - Personnel expense category was $7 

million below its year-to-date budget, and represents 42 percent of the 

total Ongoing Operations variance. 

 

• Approximately $2 million was spent in the Receivership Funding 

component of the 2007 Corporate Operating Budget, which was $17 

million (89 percent) below the budget for the three months ending March 

31, 2007. The Outside Services - Personnel expense category was $14 

million below its year-to-date budget, and represents 85 percent of the 

total Receivership Funding variance. 

I. Corporate Fund Financial Statement Results (See pages 9 - 10 for detailed data and charts.)

Deposit Insurance Fund (DIF) 

• For the three months ending March 31, 2007, DIF’s comprehensive income totaled $580 

million compared to $596 million last year, a decrease of 2.7 percent. Excluding the 

recognition of exit fees earned of $346 million (a one-time adjustment), comprehensive income 

actually rose by $330 million from a year ago. This year-over-year increase is primarily due to 

increases in the following line items: $89 million increase in assessments earned, $89 million 

increase in interest earned on investment securities, and a $138 million higher contribution to 

year-to-date comprehensive income from unrealized gain/(loss) on AFS securities, net. 

• DIF reported an 18.6 percent ($89 million) increase in interest income during the first quarter 

of 2007 compared to a year ago, primarily stemming from higher inflation compensation 

related to the DIF’s holdings of Treasury Inflation-Protected Securities (TIPS). In addition, the 

DIF reported an unrealized gain on AFS securities of $81 million during the first quarter of 

2007, compared to an unrealized loss of $57 million during the first quarter of 2006. The first 

quarter 2007 unrealized gain stemmed from a decline in market yields, despite the lower 

duration for the AFS securities held in the DIF’s investment portfolio. 

 

• DIF recorded a $94 million receivable for estimated net deposit insurance assessments due 

from insured institutions for first quarter 2007 insurance coverage. Starting this quarter, the 

FDIC must estimate assessment revenue, and establish a corresponding receivable, because 

assessment premiums are now collected a quarter after the insurance coverage period (a change 

from the previous 'payment in advance' requirement). The FDIC has developed an estimation 

methodology based on institution assessment base and rate results, and available assessment 

credits, for the prior quarter, adjusted for significant changes in the current quarter and a 

modest deposit growth factor. The first quarter 2007 receivable of $94 million was the result of 

netting $820 million in assessment credits estimated to be used by financial institutions against 

estimated gross assessment revenue of $914 million. However, this estimate may differ from 
4

the amount collected in June 2007 since the invoice amount will be based on actual first quarter 

2007 assessment base, rate, and credit results. 

FSLIC Resolution Fund (FRF) 

• FRF reported a net loss of $19 million for the first quarter of 2007 as a result of several 

offsetting factors. The FRF incurred $107.3 million in Goodwill litigation expenses due to the 

payment of a $32.8 million Goodwill judgment and the accrual of a $74.5 million estimated 

loss for a second Goodwill case. These Goodwill litigation expenses were partially offset by 1) 

$41 million in interest earned on U.S. Treasury overnight securities, 2) $20 million in criminal 

restitution income, 3) $13 million in FSLIC assistance agreement tax benefits, and 4) the net 

effect of a $22.5 million payment for a Guarini litigation settlement and the reversal of a $27.1 

million loss reserve for this same case. This Guarini settlement concludes the last of the eight 

Guarini cases originally filed against the government seeking damages. 

II. DIF Investment Results (See pages 11 – 12 for detailed data and charts.)

DIF 

 

• During the first quarter of 2007, the par value of the DIF investment portfolio increased by 

$568 million or by 1.22 percent—from $46.483 billion on December 31, 2006, to $47.051 

billion on March 31, 2007. Moreover, during the quarter, the DIF portfolio’s market value 

increased by $730 million or by 1.49 percent, from $49.038 billion on December 31, 2006, to 

$49.768 billion on March 31, 2007. 

• The DIF investment portfolio's total return for the first quarter of 2007 was 1.655 percent, 

approximately 10.3 basis points higher than the return of the benchmark, the Merrill Lynch 1 - 

10 Year U.S. Treasury Index (Index), which earned 1.552 percent during the same period. The 

outperformance relative to the benchmark can be attributed to the strong performance of the 

DIF investment portfolio’s TIPS holdings, which outperformed the benchmark’s conventional 

securities during the quarter. 

• During the first quarter of 2007, staff purchased Treasury securities on two occasions, both 

purchases occurring in January. Staff purchased four securities with a total par value of $1.300 

billion, a weighted average maturity of 6.34 years, a weighted average duration of 5.10 years, 

and a weighted average yield-to-maturity of 4.835 percent. During February and March, staff 

continued its recent practice of deferring purchases of longer-maturity securities and holding 

excess funds in higher-yielding overnight investments. On March 31, 2007, the DIF portfolio’s 

overnight investment balance was $3.709 billion, well above its $150 million target floor, and 

higher than the $2.949 billion balance on December 31, 2006, meaning that staff purchased a 

smaller amount of Treasury securities compared to the amount of net cash received during the 

quarter. 

• In line with consensus expectations, yields should continue to trade generally within their 

current range, but with the potential for a modest rise from quarter-end levels. Similar to the 

strategy employed during the first quarter, during the second quarter, staff will take advantage 

of instances when yields rise toward the upper end of this trading range and accordingly will 

deploy funds into longer-maturity higher-yielding securities. 
5

The Treasury Market 

• During the first quarter of 2007, conventional Treasury yields were little changed over the 

short-end of the curve and decreased modestly across the remaining maturity sectors. This 

non-parallel yield curve shift may be attributed to market expectations that the Federal Reserve 

was unlikely to cut the federal funds target rate over the near term, although expectations for 

rate cuts later this year have grown stronger. The yield on the three-month Treasury bill 

increased by two basis points, while the yield on the six-month Treasury bill decreased by two 

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

changes in the federal funds rate, decreased by 24 basis points, again, reflecting stronger 

consensus expectations that the federal funds target rate will be cut later this year. 

Intermediate-term Treasury yields also decreased, with the five-year Treasury note yield 

declining 16 basis points and the ten-year note yield declining a more modest six basis points. 

The Treasury yield curve ended the first quarter very flat and slightly positive; on March 31, 

2007, the ten-year to two-year yield curve spread was a positive seven basis points (compared 

to a negative 11-basis point spread at end of the fourth quarter of 2006). From a recent 

historical perspective, the curve remains significantly flatter; over the past five years, this 

spread has averaged 123 basis points. 

• During the first quarter of 2007, TIPS real yields decreased, reflecting concerns over weak 

economic growth as well as lingering inflationary pressures. For example, the real yield on the 

DIF portfolio’s longest-maturity TIPS (with a maturity of a little under five years) decreased by 

41 basis points. The real yield on the ten-year TIPS maturing on January 15, 2016, decreased 

by 23 basis points. 

Prospective Strategies 

• The current DIF investment strategy provides the flexibility to purchase a wide range of 

different Treasury securities with varying maturities, depending on Treasury market conditions 

and developments during the second quarter of 2007. Similar to the first quarter 2007 

investment strategy, if higher yields become available—either as a result of an upward shift in 

the yield curve or because of potential yield volatility—the second quarter 2007 strategy 

provides the flexibility to purchase comparatively higher-yielding, longer-maturity Treasury 

securities. Given the flat Treasury yield curve, purchasing short- and intermediate-maturity 

Treasuries may also make sense. 

• The DIF portfolio’s primary reserve target floor balance will remain at $10 billion for the 

second quarter of 2007. The target limit for TIPS will also remain at its current $10 billion 

target, while the AFS security target limit is being increased from $8.7 billion to $9.0 billion to 

help ensure that the primary target floor balance can be maintained during 2007 (see attached 

Approved Investment Strategy). 
6

III. Budget Results (See pages 13 - 14 for detailed data.)

Approved Budget Modifications 

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

Budget and/or authorized staffing, in accordance with the authority delegated by the Board of 

Directors in the 2007 Budget Resolution: 

• The Chief Financial Officer approved the reallocation of $2,208,024 within the Ongoing 

Operations component of the approved 2007 Corporate Operating Budget from the Division of 

Resolutions and Receiverships (DRR) to the Division of Finance (DOF). The reallocation was 

made in conjunction with a reorganization that transferred the deposit insurance compliance 

function, along with the 13 authorized positions, from DRR to DOF. 

• Two divisions, the Division of Information Technology (DIT) and the Division of Supervision 

and Consumer Protection (DSC), made minor reallocations among the major expense 

categories of their respective operating budgets. The total of these adjustments increased 

Outside Services – Other by $642,868, Outside Services – Personnel by $398,881, and Other 

Expenses by $196,846. This was offset by decreasing Equipment by $709,997 and Travel by 

$528,598. 

Status of Spending for the Implementation of Deposit Insurance Reform 

The 2007 Corporate Operating Budget approved by the Board of Directors included funding for the 

continued implementation of Deposit Insurance Reform. Excluding internal salaries and compensation 

expenses, $4.9 million was spent on system changes and $1.8 million was spent on printing and 

distribution costs in 2006. During the first quarter of 2007, an additional $1.8 million (excluding 

internal salaries and compensation expenses) was spent as follows: 

• Approximately $1.4 million was spent for system development and enhancement activities. In 

addition, about $0.6 million was approved by the Change Control Board for additional work 

that will be undertaken later in the year. A total of $4.7 million is budgeted in 2007 for systems 

work related to deposit insurance reform implementation. 

• Approximately $0.4 million was spent for printing and distribution of updated deposit 

insurance brochures during the first quarter of 2007. Up to $0.8 million more will be spent 

revising the Spanish, Korean, and Chinese versions of Insuring Your Deposit and Your Insured 

Deposit later this year. 

No funds have been spent in 2006 or 2007 for the additional staff in the Division of Insurance and 

Research (DIR) that the Board authorized to support deposit insurance pricing. DIR continues to defer 

hiring for those positions until final determinations are made about the new deposit insurance 

assessment system. 

Spending Variances 

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

Significant spending variances for the three months ending March 31, 2007, are defined as those that 

either (1) exceed the YTD budget by $3 million and represent more than five percent for a major 
7

expense category or total division/office budget; or (2) are under the YTD budget for a major expense 

category or division/office by an amount that exceeds $5 million and represents more than ten percent 

of the major expense category or total division/office budget. 

Significant Spending Variances by Major Expense Category 

Ongoing Operations

There was only one major expense category in which a significant spending variance occurred during 

the first quarter in the Ongoing Operations component of the Corporate Operating Budget: 

• Outside Services-Personnel expenditures were $7 million, or 18 percent, less than budgeted. 

Approximately half of this variance was due to information technology (IT) project schedule 

changes and a decision by DIT management during its ongoing review of corporate IT 

priorities to scale back selected DIT internal activities. This made approximately $1.6 million 

available for reallocation to support continued expansion of the new Unix operating 

environment for projects under development, bringing to $5.0 million the total funds now 

planned to be spent for this purpose in 2007. The Chief Information Officer determined in 

February 2006 that Unix would provide a more modern and cost effective technological 

environment and designated it as the target architecture for the Corporation’s IT infrastructure; 

initial purchases of equipment and software for the new environment were made during the 

fourth quarter of 2006, as previously reported to the Board. As additional funds are available, 

DIT plans to continue to expand the Unix environment to support new applications that can 

efficiently and effectively use this technology. 

• In addition to the variance in IT contract spending, lower-than-budgeted first quarter spending 

for government litigation being handled by the Department of Justice contributed $1 million to 

the first quarter variance in the Outside Services-Personnel category. Another $0.8 million of 

the variance was the result of a delay in the award of a contract for the Identity Theft Media 

Campaign and the fact that DSC inadvertently neglected to accrue for IT support received from 

the FFIEC to meet Home Mortgage Disclosure Act/Community Reinvestment Act reporting 

requirements. 

Receivership Funding

The Receivership Funding component of the Corporate Operating Budget includes funds budgeted for 

non-personnel expenses that are incurred in conjunction with an institution failure and the management 

and disposition of the assets and liabilities of the ensuing receivership. There was one major expense 

category in the Receivership Funding component in which a significant spending variance occurred 

during the first quarter: 

• Outside Services-Personnel expenditures were $14 million, or 93 percent, less than budgeted, 

primarily due to the limited receivership and resolution activity that occurred during the 

quarter. 
8

Significant Spending Variances by Division/Office1

There were two organizations that had a significant spending variance during the first quarter: 

• DRR spent $13 million, or 53 percent, less than budgeted. This variance was fully attributable 

to under spending in the Receivership Funding component of DRR’s operating budget 

primarily due to the limited receivership and resolution activity that occurred during the 

quarter. 

• DIT spent $6 million, or 12 percent, less than budgeted. This was due largely to IT project 

schedule changes and a decision by DIT management to scale back selected DIT internal 

activities in order to reallocate funds to continue expansion of the new Unix operating 

environment, as described above. In addition, within the Corporation’s Investment Budget, a 

major software purchase planned for the Claims Administration System investment project in 

March was delayed. 

Other Matters 

In accordance with the requirements of the 2007 Budget Resolution, an analysis of 2007 funding 

requirements for employee salaries and fringe benefits was completed after the close of the first 

quarter. The analysis determined that those costs had been over-estimated by approximately $2.6 

million during the preparation of the 2007 Corporate Operating Budget. This represents only about 

four-tenths of one percent of the 2007 budget for Salaries and Compensation and could be affected by 

other factors during the remainder of the year, such as timing of actions to fill authorized vacancies. 

Accordingly, no action is being taken by the CFO to modify the 2007 budget for Salaries and 

Compensation that was approved by the Board in December 2006. 

 

1

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

(unaudited) (audited) 

Mar-07 Dec-06

Cash & cash equivalents $ 3,712 $ 2,954 $ 758 26% $ 1,426 

Investment in U.S. Treasury obligations, net 45,942 46,142 (200) (0.4%) 46,647 

Assessments receivable, net 94 0 94 100% 0

Interest receivable on investments and other assets, net 682 748 (66) (9%) 722 

Receivables from resolutions, net 431 539 (108) (20%) 497 

Property, buildings and other capitalized assets, net 368 377 (9) (2%) 377 

Total Assets $ 51,229 $ 50,760 $ 469 1% $ 49,669 

Accounts payable and other liabilities 119 154 (35) (23%) 266 

Postretirement benefit liability 130 130 0 0% 0 

Contingent Liabilities: future failures 35 111 (76) (68%) 9 

Contingent Liabilities: litigation losses & other 200 200 0 0% 201 

Total Liabilities $ 484 $ 595 $ (111) (19%) $ 476 

FYI: Unrealized gain on available-for-sale securities 315 234 81 35% 350 

FYI: Unrealized postretirement benefit gain/(loss) 2 2 0 0% 0 

FUND BALANCE $ 50,745 $ 50,165 $ 580 1% $ 49,193 

Income Statement 

(unaudited) (audited)

Mar-07 Dec-06

Assessments earned $ 94 $ 32 $ 5 $ 89 

Interest earned on investment securities 567 2,241 478 89 

Exit fees earned 0 345 346 (346)

Other revenue 4 26 5 (1)

Total Revenue $ 665 $ 2,644 $ 834 $ (169)

Operating expenses (includes depreciation expense) 239 951 224 15 

Provision for insurance losses (73) (52) (45) (28)

Other expenses 0 6 2 (2)

Total Expenses & Losses $ 166 $ 905 $ 181 $ (15)

Net Income $ 499 $ 1,739 $ 653 $ (154)

Unrealized gain/(loss) on available-for-sale securities, net 81 (173) (57) 138 

Unrealized postretirement benefit gain/(loss) 0 2 0 0 

YTD Comprehensive Income $ 580 $ 1,568 $ 596 $ (16)

Deposit Insurance Fund

Deposit Insurance Fund

(unaudited)

Change

Mar-06

(unaudited)

% Change

Year-OverYear Change

Mar-06

Estimated net assessment revenue is projected to grow by 151 percent by the end of 2007.

927 936 945 914

763

709

820 788

236 173

139 94

0

200

400

600

800

1000

1st Qtr 2007 2nd Qtr 2007 3rd Qtr 2007 4th Qtr 2007

$ in millions

Gross Assessment Revenue Credits Used Net Assessment Revenue

Five of the 24 active DIF receiverships account for the majority of DIF's net receivable from resolutions.

$344

$90

$40

$94

$35

$12 $1

$40

$213

$232

$268

$110

$132

$124 $124

$60 $60 $78

$7 $17 $25

$65

$27 $27

$0

$50

$100

$150

$200

$250

$300

$350

$400

$ in millions

Superior

So Pacific

NextBank

Hamilton

Keystone

Others

FDIC CFO REPORT TO THE BOARD – First Quarter 2007

Fund Financial Results ($ in millions)

page 9

Total: $722 million $533 million $539 million $431 million

Year: 12/2004 12/2005 12/2006 3/2007 
page 10

Fund Financial Results - continued ($ in millions )

$20.8 $19.2

$18.9 $18.6

Income Statement - (continued) 

Statements of Cash Flows 

(unaudited) (audited)

Mar-07 Dec-06

Net Income $ 499 $ 1,739 $ 653 $ (154)

Amortization of U.S. Treasury obligations (unrestricted) 136 599 148 (12)

TIPS Inflation Adjustment (25) (109) 39 (64)

Depreciation on property and equipment 13 53 13 0 

Provision for insurance losses (73) (52) (45) (28)

Exit fees earned 0 (345) (346) 346 

Net change in operating assets and liabilities 37 100 74 (37)

Net Cash Provided by Operating Activities $ 587 $ 1,985 $ 536 $ 51

Investments matured and sold 1,515 6,800 1,025 490 

Investments purchased (includes purchase of property and 

equipment) (1,344) (9,062) (3,366) 2,022 

Net Cash (Used) by Investing Activities $ 171 $ (2,262) $ (2341) $ 2512

Net Increase (Decrease) in Cash and Cash Equivalents 758 (277) (1,805) 2,563 

Cash and Cash Equivalents at beginning of year 2,954 3,231 3,231 (277)

Cash and Cash Equivalents - Ending $ 3,712 $ 2,954 $ 1,426 $ 2286

(unaudited) (audited)

Mar-07 Dec-06

Cash and cash equivalents $ 3,676 $ 3,616 $ 3,636 $ 40

Accumulated deficit, net (123,853) (123,834) (123,777) (76)

Resolution equity 3,708 3,620 3,409 299 

Total revenue $ 64 $ 169 $ 37 $ 27

Operating expenses 0 12 3 (3)

Expenses for Goodwill/Guarini litigation 103 411 179 (76)

Net (loss) $ (19) $ (203) $ (146) $ 127

# of Cases # of 

Cases

Dismissals/

Time 43 0

Settlements 18 3

Judgments 38 5

Pending 23 0

Totals 122 8

N/A

$1,306 million

Year-OverYear Change

Year-OverYear Change

Guarini

Summary of Goodwill & Guarini Litigation 

(Inception-to-Date)

FSLIC Resolution Fund (FRF)

* Four institutions account for 69% 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

Deposit Insurance Fund

Mar-06

(unaudited)

Mar-06

(unaudited)

Amount Paid/ 

Accrued

N/A

$149 million

$1,157 million*

Amount Paid

N/A

$121 million

$153 million

N/A

$274 million

FRF Quarterly Payments for Goodwill & Guarini Case 

Settlements & Judgments

$16

$179

$9 $0

$382

$0

$285

$234

$0

$169

$49 $28

$0 $0 $6 $0 $23 $0

0

50

100

150

200

250

300

350

400

450

1Q

2005

2Q

2005

3Q

2005

4Q

2005

1Q

2006

2Q

2006

3Q

2006

4Q

2006

1Q

2007

$ in Millions

Goodwill Cases Guarini Cases

DIF Coverage Ratio

(Interest Revenue/Operating Expenses)

2.39 2.21 2.24 2.42 2.36 2.37

0

1

2

3

4

5

2002 2003 2004 2005 2006 3/2007
3/31/07 12/31/06 Change

Par Value $47,051 $46,483 $568

Amortized Cost $49,333 $48,858 $475

Market Value $49,768 $49,038 $730

Primary Reserve 1 $16,057 $13,911 $2,146

Primary Reserve Target Floor $10,000 $10,000 $0

Primary Reserve % of Total Portfolio 31.8% 28.0% 3.8%

Year-to-Date Total Return (Portfolio) 1.66% 4.06% not applicable

Year-to-Date Total Return (Benchmark) 2 1.55% 3.57% not applicable

Total Return Variance (in basis points) 10 49 not applicable

Yield-to-Maturity 3 4.92% 4.89% 0.03%

Weighted Average Maturity (in years) 3.47 3.57 (0.10)

Effective Duration (in years) 4

 Total Portfolio 2.76 2.82 (0.06)

 Available-for-Sale Securities 1.67 1.80 (0.13)

 Held-to-Maturity Securities 3.30 3.29 0.01

3/31/07 12/31/06 Change

Book Value 5 $296 $381 ($85)

Yield-to-Maturity 5.46% 5.37% 0.09%

Weighted Average Maturity (in days) 8 13 (5)

updated in September 2006 to reflect recent past experience).

3

 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.

5

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

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.

2

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

4

 For each TIPS, a 80% factor is applied to its real yield duration to arrive at an estimated effective duration (note: factor

National Liquidation Fund (NLF) Investment Portfolio Summary

(Dollar Values in Millions)

U.S. Treasury Security Yield Curves

1.25%

1.75%

2.25%

2.75%

3.25%

3.75%

4.25%

4.75%

5.25%

5.75%

3

Month

6

Month

1 Year

2

Year

3

Year

4

Year

5

Year

7

Year

10

Year page 11

Conventional

TIPS

12/31/06

3/31/07

12/31/06

3/31/07
page 12

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 twelve-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 exceed twelve years,

subject to the following limitations:

TIPS should not total more than $10.0 billion (adjusted par value) by quarter end;

Available-for-sale (AFS) securities should not total more than $8.7 billion (par value) by quarter end; and

All newly purchased AFS securities should have maturities of six years or less.

Moreover, staff will strive to maintain an $10 billion target floor primary reserve balance.

Maintain a $30 million target floor overnight investment balance.

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

 None

Approved Investment Strategy

Current Strategy as of 1st Quarter 2007

Strategy Changes for 2nd Quarter 2007

Current Strategy as of 1st Quarter 2007

DEPOSIT INSURANCE FUND

Strategy Changes for 2nd Quarter 2007

AFS securities target limit increased from $8.7 billion to $9.0 billion. 

NATIONAL LIQUIDATION FUND
page 13

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 $162,493 $158,141 97% ($4,352)

Outside Services - Personnel 36,387 29,763 82% (6,624)

Travel 12,293 10,335 84% (1,958)

Buildings 16,424 16,665 101% 241

Equipment 7,887 7,887 100% 0

Outside Services - Other 5,320 2,878 54% (2,442)

Other Expenses 2,601 1,810 70% (791)

Total Ongoing Operations $243,405 $227,479 93% ($15,926)

Receivership Funding

Salaries & Compensation $855 $203 24% ($652)

Outside Services - Personnel 15,337 1,096 7% (14,241)

Travel 1,411 350 25% (1,061)

Buildings 575 314 55% (261)

Equipment 56 2 4% (54)

Outside Services - Other 136 14 10% (122)

Other Expenses 380 8 2% (372)

Total Receivership Funding $18,750 $1,987 11% ($16,763)

Total Corporate Operating Budget $262,155 $229,466 88% ($32,689)

Investment Budget 1 $5,602 $3,885 69% ($1,717)

Grand Total $267,757 $233,351 87% ($34,406)

(Dollars in Thousands)

Executive Summary of 2007 Budget and Expenditures

by Major Expense Category

Through March 31, 2007
page 14

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 $96,237 $92,772 96% ($3,465)

 Information Technology 42,921 38,669 90% (4,252)

 Administration 39,742 36,296 91% (3,446)

 Resolutions & Receiverships 24,743 11,448 46% (13,295)

 Legal 23,101 18,452 80% (4,649)

 Insurance & Research 9,161 8,378 91% (783)

 Finance 7,436 6,971 94% (465)

 Inspector General 6,281 5,788 92% (493)

 Corporate University 6,307 6,047 96% (260)

 Executive Support 1 4,150 3,501 84% (649)

 Executive Offices 2 1,076 1,144 106% 68

 Government Litigation 1,000 0 0% (1,000)

 Total, Corporate Operating Budget $262,155 $229,466 88% ($32,689)

 Investment Budget 3

 Information Technology $5,451 $3,751 69% ($1,700)

 Resolutions & Receiverships 52 115 221% 63

 Insurance & Research 99 19 19% (80)

 Total, Investment Budget 3 $5,602 $3,885 69% ($1,717)

 Combined Division/Office Budgets

 Supervision & Consumer Protection $96,237 $92,772 96% ($3,465)

 Information Technology 48,372 42,420 88% (5,952)

 Administration 39,742 36,296 91% (3,446)

 Resolutions & Receiverships 24,795 11,563 47% (13,232)

 Legal 23,101 18,452 80% (4,649)

 Insurance & Research 9,260 8,397 91% (863)

 Finance 7,436 6,971 94% (465)

 Inspector General 6,281 5,788 92% (493)

 Corporate University 6,307 6,047 96% (260)

 Executive Support 1 4,150 3,501 84% (649)

 Executive Offices 2 1,076 1,144 106% 68

 Government Litigation 1,000 0 0% (1,000)

 Grand Total $267,757 $233,351 87% ($34,406)

(Dollars in Thousands)

Executive Summary of 2007 Budget and Expenditures

by Budget Component and Division/Office

Through March 31, 2007