Federal Deposit Insurance Corporation

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

 November 17, 2017

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 2017 CFO Report to the Board 

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

September 30, 2017.

Executive Summary

 During the third quarter of 2017, the Deposit Insurance Fund (DIF) balance increased by $2.9 

billion, from $87.6 billion at June 30, 2017 to $90.5 billion at September 30, 2017. The quarterly 

increase was primarily due to $2.6 billion of assessment revenue, $274 million of interest on U.S. 

Treasury securities, and a $512 million decrease in provision for insurance losses, partially offset 

by $404 million of operating expenses.

 The reserve ratio, which is the ratio of the DIF balance to estimated insured deposits, was 1.28

percent for the third quarter 2017, compared to the second quarter 2017 reserve ratio of 1.24

percent. 

 There were no financial institution failures during the third quarter of 2017.

 Through September 30, 2017, overall FDIC Operating Budget expenditures were below budget by 

8 percent ($119 million). This variance was primarily the result of higher than expected vacancies 

in budgeted positions during the year. In addition, lower-than-anticipated expenses for facilities, 

outside legal counsel, and other outside services contributed to the variance.
2

I. Financial Results (See pages 5 – 6 for detailed data and charts.)

Deposit Insurance Fund 

 For the nine months ending September 30, 2017, the DIF’s comprehensive income totaled $7.3

billion compared to comprehensive income of $8.1 billion for the same period last year. This $760

million decline was primarily the result of a $1.3 billion increase in provision for insurance losses

(year-to-date 2017 positive $20 million versus year-to-date 2016 negative $1.2 billion) and a $393

million lower contribution to year-to-date comprehensive income from unrealized (loss)/gain on 

U.S. Treasury securities (year-to-date 2017 unrealized loss of $38 million versus year-to-date 2016 

unrealized gain of $355 million), partially offset by a $640 million increase in assessment revenue 

and a $270 million increase in interest revenue.

 The provision for insurance losses was $20 million for year-to-date 2017, compared to negative 

$1.2 billion for year-to-date 2016. The provision for 2017 primarily resulted from a decrease of 

$702 million to the estimated losses for prior year failures offset by a $683 million adjustment for 

higher-than-anticipated losses at the time of failure for current year failures, as compared to the 

estimated liability at year-end 2016. Reductions for estimated losses for prior year failures 

occurred in both periods; however, the decreases in 2016 were approximately 40 percent more 

than those in 2017 ($702 million for year-to-date 2017 and $1.2 billion for year-to-date 2016).

Assessments

 During September, the DIF recognized assessment revenue of $2.6 billion. Of this amount, $1.4 

billion represented the estimate for the third quarter 2017 insurance coverage and $1.2 billion 

represented estimated assessment surcharges on banks with $10 billion or more in assets. 

Additionally, the DIF recognized a $67 million adjustment for lower-than-estimated collections for 

the second quarter 2017 insurance coverage (regular assessments and surcharges), which 

decreased assessment revenue.

 On September 29, 2017, the FDIC collected $1.4 billion in DIF regular assessments and $1.2 

billion in surcharge assessments for second quarter 2017 insurance coverage.

II. Investment Results (See pages 7 - 8 for detailed data and charts.)

DIF Investment Portfolio

 On September 30, 2017, the total liquidity (also total market value) of the DIF investment portfolio 

stood at $81.2 billion, up $5.9 billion from its December 31, 2016, balance of $75.3 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, 2017, the DIF investment portfolio’s yield was 1.42 percent, up 30 basis points 

from its 1.12 percent yield on December 31, 2016. The new Treasury securities purchased during 

the first three quarters of the year generally had higher yields than the maturing securities’ yields, 

some considerably higher.

 In accordance with the approved third quarter 2017 DIF portfolio investment strategy, staff 

purchased a total of 19 short- to intermediate-maturity conventional Treasury securities, all 

designated as available-for-sale. The 19 securities had a total par value of $10.2 billion, a 

weighted average yield of 1.56 percent, and a weighted average maturity of 2.73 years.
3

III. Budget Results (See pages 9 - 10 for detailed data.)

Approved Budget Modifications

The 2017 Budget Resolution delegated to the Chief Financial Officer (CFO) and selected other officials the 

authority to make certain modifications to the 2017 FDIC Operating Budget. The following budget 

reallocations were approved during the third quarter in accordance with the authority delegated by the 

Board of Directors.

 In July 2017, the Division of Administration (DOA) implemented an internal realignment of its 

existing Ongoing Operations budget to increase the Buildings expense category by $1,878,500 and 

decrease the Equipment and Outside Services-Personnel expense categories by $1,159,500 and 

$719,000, respectively.

 In August 2017, the CFO approved the following budget increases and realignments, primarily 

through the realignment of funds from the Corporate Unassigned contingency reserve:

 An increase of $116,500 to the Outside Services-Personnel expense category of the Ongoing 

Operation budget of the Division of Information Technology (DIT). This increase provided 

continuing contract support for the CIO’s internal communications program.

 An increase of $533,319 to the Outside Services-Personnel expense category of the Ongoing 

Operations budget of DIT to complete a Phase I pilot of the Data Protection Program (planning 

funds for this initiative were included in the initial 2017 DIT Ongoing Operations budget). This 

program will protect FDIC data by developing standards for classification of data, assigning 

classifications to all FDIC information, and implementing tools to secure data according to its 

classification.

 Following all third quarter budget modifications, the balances in the Corporate Unassigned 

contingency reserves were $25,764,771 in the Ongoing Operations budget component and 

$30,524,390 in the Receivership Funding budget component.

Approved Staffing Modifications

The 2017 Budget Resolution delegated to the CFO the authority to modify approved 2017 staffing 

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

2017 FDIC Operating Budget. There were no approved staffing modifications in the third quarter.

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, 2017, are defined as those that 

either (1) exceed the YTD budget by more than $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 $7 million and represents more than seven percent 

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

Significant Spending Variances by Major Expense Category

Ongoing Operations

There was only one significant spending variance in a major expense category in the Ongoing Operations 

budget component through the third quarter:
4

 Expenditures for Equipment were $8.8 million, or 15% less than budgeted. This variance was 

largely attributable to lower-than-budgeted spending by the DIT on technology refreshment 

purchases and software maintenance. 

Receivership Funding

The Receivership Funding component of the 2017 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 was only one significant spending variance in a major expense category in the Receivership 

Funding budget component through the third quarter:

 Outside Services-Personnel expenditures were $22.5 million, or 15 percent, less than 

budgeted. This variance was mostly attributable to lower-than-budgeted spending for outside 

counsel services by the Legal Division, which spent $20 million, or 35 percent, less than budgeted. 

The Legal Division attributes this underspending to the significant amount of litigation that was on 

hold while waiting for the court to rule on motions.

Office of Inspector General

There were no significant spending variances through the third quarter in any major expense category of 

the Office of Inspector General budget component of the 2017 FDIC Operating Budget.

Significant Spending Variances by Division/Office1

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

 The Legal Division spent $29 million, or 17%, less than budgeted, due mostly to a lower-thananticipated use of outside legal counsel in the Receivership Funding component and due to 

vacancies in budgeted staffing positions. 

 DOA spent $15 million, or 8%, less than budgeted, largely due to lower-than-budgeted spending on 

building operating costs, maintenance and repairs, and construction projects that have been 

deferred, partially or wholly, to 2018. Additionally, lower spending for security services from Global 

Resource Solutions, Inc. and the Office of Personnel Management contributed to the variance. 

 The Division of Resolutions and Receiverships spent $14 million, or 7%, less than budgeted, 

largely due to lower than budgeted salaries and compensation expenses in both the Ongoing 

Operations and Receivership Funding budget components, and less than anticipated spending in 

the Buildings expense category of the Receivership Funding budget component.

 

1

Information on division/office variances reflects variances in the FDIC Operating Budget.
FDIC CFO REPORT TO THE ~~ ~~'~~ ~T'~~~~ ~~~ ~ ~~*~~~ '~'''

.. .

.~

Cash and cash equivalents $ 1,237

--

~.~~,

$ 3,362

In~stment in U.S. Treasury securities _ 79,439 75,043

Assessments receivable, net 2,635 2,677

Interest receivable on in~stments and other assets, net 517

_

399

Receivables from resolutions, net

Property and equipment, net

Total Assets

Accounts payable and other liabilities _

Liabilities due to resolutions

Postretirement benefit liability

Contingent liability for anticipated failures

~ 9,317 8,944

~_ 333 324

$ _ 93,478

~ 198

~ 2,421

$ 90,749

242

2,535

232

86

232

117

Contingent liability for litigation losses and other 35 35

Total Liabilities $ 2,972 $ 3,161

FYI: Unrealized gain (loss) on U.S. Treasury securities, net (1~

FYI: Unrealized postretirement benefit (loss) gain _ _ (26) (26)

Fund Balance $ 90,506 $ 87,588

$ (2,125) $ 4,273 ~ $ (3,036)

4,396 68,124 11,315

(42)~ 2,686 _ (51)

118 565 (48)

373 u_9,044 273

9 360 (27)

$ 2,729 $ _ 85,052 $ 8,426

(44) 218 (20j

(114) 3,538 (1,117)

233 (1)

(31)~ 359 (273)

0 ~ 0 ~ 35

$ (189) $ 4,348 $ (1, 376)

(33) ~ 346 (363)

$ 2,918 $ 80,704 $ 9,802

The decrease in unrealized

gains on the DIF portfolio's

U.S. Treasury securities

since mid-2016 was the

result of yields rising

dramatically across all

maturity sectors of the

Treasury yield curve,

resulting in declines in the

securities' market values

relative to their book

values.

.~
s

1 r -a

• • •.

Assessments $ 7,939

1' ~ ~

$ 5,371

Interest on U.S. Treasury securities 752 478

Other revenue ~e 8 6

Total Revenue $ 8,699 $ 5,855

Operating expenses 1,296 892

Provision for insurance losses 20 532

Insurance and other expenses 1 0

Total F~cpenses and Losses $ 1,317 $ 1,424

Net Income 7,382 4,431

Unrealized gain (loss] on U.S. Treasury securities, net (38) (5)

Unrealized postretirement benefit gain (loss) - -

Com rehensive Income

~.

Cash and cash equivalents

$

$

7,344

• 883

$ 4 426

~

$ 881

Accumulated deficit (124,606) (124,607)

Total resolution equity 884 882

Total revenue 5 3

Operating expenses 0 0

Losses related to thrift resolutions 0 0

Net Income (Loss) $ 5 $ 3,

$ in millions

Total Receiverships

Assets in Liquidation

YTD Collections

YTD Di~idendlOther Pymts -Cash

2,568 I $ 7,299 $ 640

- 274I 482 270

— - 2 I ~ 3

C5)

$ 2,844 $ 7,794 $ 905

404 1, 278 18

(512) (1, 236) 1, 256

~~ C2)

$ (107),, $ 45 ~ $ 1,272

$ 2,951 7,7491 (367)

(33) 355 ~

-~ -~

_ (393)

-

$ 2

1

2

2

0

0

$ 873 $ 10

~ ~ 10

11

- ~

(3)

0

--

(124,616)

~ 873

~ --- 4

3

~— — 0

-

_'~ '~

- -

~ a

~

i

~

Sep-17 Sep-16 Change Sep-17 Sep-16 Change Sep-17 Sep-16 Change

367 404 (37) - - - 367 404 (37)

$ 4,971 $ 3,756 $ 1,215 $ 2 $ 2 $ - $ 4,973 $ 3,758 $ 1,215

$ 1,260 $ 1,289 $ (29) $ 1 $ 2 $ (1) $ 1,261 $ 1,291 $ (30)

$ 1,448 $ 3,296 $ (1,848) $ - $ - $ - $ 1,448 $ 3,296 $ (1,848)

Concentration of Credit Risk in Receivables from

Resolutions as of September 30, 2017

38 States

1G% ($3.78)

Norida

9% (S1.SD) ~afifornia

5196 (510.08)

Louisian

~~ 15z.5

Total balance = S19.6 billion

The repayment of the receivables

from resolutions is primarily

influenced by recoveries on assets

held by DIF receiverships and

receivership payments on the

covered assets under shared-loss

agreements. The majority of the

remaining assets in liquidation

($5.0 billion) and current sharedloss covered assets ($14.6 billion),

which together total $19.6 billion,

are concentrated in failed

institutions located in California,

Louisiana, Puerto Rico, and

Florida.

Of the $19.6 billion total balance,

$16.4 billion (84%) is concentrated

in California, Louisiana, Puerto

Rico, and Florida.

0
~..

9/30/17 12/31/16 Change

Par Value $80,233 $74,430 $5,803

Amortized Cost $80,766 $74,947 $5,819

Total Market Value (including accrued interest) $81,152 $75,335 $5,817

Primary Reserve' $81,152 $75,335 $5,817

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

Yield-to-Maturity 2 1.42% 1.12% 0.30%

Weighted Average Maturity (in years) 1.98 1.60 0.38

Effective Duration (in years)

Total Portfolio 1.91 1.55 0.36

Available-for-Sale Securities 1.98 1.66 0.32

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

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

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

2 The Yeld-to-Maturity includes the potential yield of Treasury Inflation-Protected Securities (TIPS), which assumes an

average 2.0% annual increase in the CPI over the remaining life of each TIPS.

31n early August 2008, management reclassified all ofthe 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 abiliryto hold its HTM securities until

their maturitydates.

~• -

9/30/17 12/31/16 Change

FRF-FSLI C

Book Value 4 ~ $839 $831 $8

Yield-to-Maturity 0.97% 0.40% 0.57%

Weighted A~,erage 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.

~. .

9/30/17 12/31/16 Change

Book Value 5 $5,890 $8,746 ($2,856)

Effecti~ Annual Yield 0.95% 0.58% 0.37%

Weighted Average Maturity (in days) 34 78 (44)

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

7
DEPOSIT INSURANCE FUND

NATIONAL LIQUIDATION FUND

Strategy for the 3rd Quarter 2017

Purchase up to $13 billion (par value) of Treasury securities with maturity dates between

December 31, 2017, and December 31, 2022, subject to the following additional provisions:

all newly purchased securities will be designated as AFS; no more than $2 billion (adjusted

par value) of such securities shall consist of TIPS; and target at least $4 billion (par value) of

newly purchased securities maturing between July 1, 2020, and December 31, 2022.

Strategy Changes for the 4th Quarter 2017

Purchase up to $11 billion (par value) of Treasury securities with maturity dates between

March 31, 2018, and December 31, 2022, subject to the following additional provisions: all

newly purchased securities will be designated as AFS; no more than $2 billion (adjusted par

value) of such securities shall consist of TIPS; and target at least $4 billion (par value) of

newly purchased securities maturing in 2021 or 2022.

Strategy for the 3rd Quarter 2017

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.

for the

No strategy changes for the fourth quarter of 2017.

0
~..

Annual YTD YfD % of YTD YTD

Major Expense Category Budget Budget Expenditures Budget Used Variance

FDIC Operating Budget

Ongoing Operations

Salaries &Compensation $1,247,608 $923,078 $x74,351 95% ($48,727)

Outside Services -Personnel $253,201 $178,734 $166,824 93% ($11,910)

Travel $65,449 $7o,s97 $s5,009 92% ($5,8s9)

BUIIdif1gS $103,054 $73,625 $68,221 93% ($5,404)

Equipment $91,133 $58,256 $49,489 85% ($8,767)

OUtSld2 SC?NICeS - Oth2f $16,545 $12,614 $11,227 89% ($1,387)

Other Expenses $14,081 $10,308 $9,146 89% ($1,162)

Total Ongoing Operations $1,821,070 $1,327,512 $1,244,266 94°/ (583,246)

Receivership Funding

Salaries &Compensation $s~,356 $2~,ass $22,953 s2% ($4,945)

Outside Services -Personnel $230,152 $150,007 $~27,50o a5% ($22,507)

Travel $3,284 $2,442 $3,232 132% $790

BUIIdif1gS $17,700 $13,308 $6,937 52% ($6,371)

Equipment $1,431 $618 $555 90% ($63)

Outside Services -Other $1,273 $985 $1,075 109% $90

Other Expenses $s,aoa $s,so3 $5,262 so% ($1,311)

Total Receivership Funding $300,000 $201,861 $767,544 83°/ ($34,317)

Office of Inspector General

Salaries &Compensation $32,770 $24,578 $23,351 95°/a ($1,227)

Outside Services -Personnel $1,418 $1,063 $837 79% ($226)

Travel $1,486 $1,114 $1,000 90% ($114)

Buildings $o $o $o go

Equipment $487 $365 $456 125% $91

Outside Senrices -Other $169 $127 $7 s°/n ($120)

Other Expenses $423 $317 $305 96% ($12)

Total Office of Inspector General $36,753 $27,564 $25,956 94°/ ($1,608)

Total FDIC Operating Budget $2,157,823 $1,556,937 $1,437,766 92°/ ($179,171)
Division/Office

• t • •

t• • •

Annual YTD YTD

Budget Budget Expenditures

% of YTD

Budget Used

YTD

Variance

FDIC Operating Budget

Risk Management Supervision $591,543 $440,174 $416,142 95% ($24,032)

Administration $273,360 $202,355 $187,020 92% ($15,334)

Resolutions &Receiverships $271,786 $203,421 $188,973 93% ($14,448)

Legal $233,804 $174,960 $145,488 83% ($29,473)

Information Technology $225,561 $161,290 $151,382 94% ($9,908)

Depositor &Consumer Protection $181,141 $135,767 $128,983 95% ($6,785)

Insurance &Research $53,106 $39,541 $36,154 91% ($3,386)

CIO Council $50,362 $35,773 $33,979 95% (1,794)

Chief Information Security Officer' $41,969 $30,006 $24,991 83% ($5,015)

Finance $40,548 $30,353 $28,570 94% ($1,783)

Inspector General $36,753 $27,565 $25,956 94% ($1,608)

Executive Support 2 $26,207 $19,164 $16,846 88% ($2,318)

Corporate University- Corporate $25,133 $18,805 $18,021 96% ($785)

Complex Financial Institutions $20,156 $14,896 $13,063 88% ($1,833)

Corporate University- CEP $19,082 $14,580 $14,697 101% $117

Executive Offices 3 $11,023 $8,287 $7,501 91% ($786)

Corporate Unassigned ~56,28s ~o ~o ~o

Total FDIC Operating Budget $2,157,823 $1,556,937 $1,437,766 92% ($119,171)

1) The Information Security &Privacy Staff was renamed the Office of the Chief Information Security Officer.

2) Executive Support includes the Offices of Minority and Women Inclusion, Communications, Ombudsman,

Legislative Affairs, Corporate Risk Management, and Financial Institution Adjudication.

3) 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.

10