FDICI

Federal Deposit Insurance Corporation

550 17th Street. NW, Washington, DC, 20429-9990 Deputy to the Chairman and CFO

March 4, 2009

MEMORANDUM TO: The Board of Directors

Steven O. App Å l? ~

Deputy to the Chairman and

Chief Financial Officer

BretD. Edwards'~ f ~ Director, Division of Finance /

FROM:

SUBJECT: Fourth Quarter 2008 CFO Report to the Board

The attached report highlights the Corporation's financial activities and results for the period ending

December 31, 2008.

Executive Summary

· The Deposit Insurance Fund (OIF) balance (unaudited) decreased by 45.4 percent ($15.699

billion) to $18.889 billion during the fourth quarter of 2008. The fourth quarter 2008 decrease

was primarily due to the $17.550 billion increase in the provision for insurance losses mainly

related to anticipated failures, offset by a $996 million increase in assessment revenue, a $551

million increase in the unrealized gain on available-for-sale securities, a $302 million increase

in the realized gain on sale of securities, and a $277 million increase in interest earned on

investment securities.

.

· The 0 IF reserve ratio is 0.40 percent as of December 31, 2008, which is 82 basis points lower

than the 1.22 percent reserve ratio at year-end 2007. This is the lowest reserve ratio for the

combined bank and thrift insurance fund since June 30, 1993, when the reserve ratio was 0.28

percent.

· During the fourth quarter of 2008, the FDIC was named receiver for 12 failed institutions:

Main Street Bank of Northville, Michigan; Meridian Bank of Eldred, llinois; Alpha Bank &

Trust of Alpharett, Georgia; Freedom Bank of Bradenton, Florida; Security Pacific Bank of

Los Angeles, California; Franklin Bank, SSB of Houston, Texas; The Community Bank of

Loganville, Georgia; Downey Savings & Loan, FA, of Newport Beach, California; PFF Bank

& Trust of Pomona, California; First Georgia Communiry Bank of Jackson, Georgia;

Sanderson State Bank of Sanderson, Texas; and Haven Trust Bank of Duluth, Georgia. The

combined assets at inception for these institutions totaled approximately $25 billion with an

estimated loss totaling $4 billion. The corporate cash outlay during the fourth quarter for these

failures was $7 billion. Additionally, the FDIC and the acquirer of both Downey Savings and

PFF Bank entered into a loss share agreement.

· For the year ending December 31,2008, Corporate Operating and Investment related

expenditures ran below budget by 1 percent ($12 million) and 13 per,cent ($4 million),

respectively. The variance with respect to the Corporate Operating Budget was primarily the
2

result of lower spending for contractual services in the Ongoing Operations component of the 

budget. 

• Spending in the Ongoing Operations component was 1 percent ($12 million) under the 

approved budget, while spending in the Receivership Funding component exceeded the 

approved budget by approximately 0.3 percent ($464,000). Receivership Funding spending 

during December substantially exceeded prior month spending levels largely due to increased 

expenses associated with failures that occurred during the first nine months of the year. 

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 

The Temporary Liquidity Guarantee Program (TLGP) will have no financial 

impact to the DIF. Any losses incurred by the DIF will be recovered first from 

fees collected from institutions participating in the TLGP and second (only if 

TLGP revenue proves insufficient) from systemic risk based assessments 

imposed on all insured depository institutions. The 2008 financial results of the 

TLGP are summarized below. 

• The FDIC collected $2.425 billion of guarantee fees from participating 

institutions on newly issued senior unsecured debt under the Debt 

Guarantee Program (DGP) in 2008 and recorded a $974 million 

receivable for fees under this program at year-end. 

• The total amount of guaranteed debt outstanding is $224 billion as of 

December 31, 2008. If all eligible entities issued debt up to the 

program’s allowable limit, the maximum loss exposure would be $940 

billion. The FDIC cannot reliably estimate the future losses associated 

with the DGP at this time since the program has been operating for a 

relatively short time and no losses have yet been incurred. 

• The FDIC recorded a $665 million contingent liability associated with 

non-interest bearing transaction accounts for the anticipated failure of 

insured institutions participating in the Transaction Account Guarantee 

Program (TAG) as of December 31, 2008. 

• During 2008, the FDIC paid the guaranteed claims of depositors under 

the TAG program in the amount of $70 million upon the failure of ten 

participating institutions. 
3

Trends and Outlook

Financial Results Comments 

II. Investments • The DIF investment portfolio’s amortized cost (book value) decreased 

dramatically by $23.889 billion during 2008, and totaled $26.580 billion 

on December 31, 2008. The decline was primarily the result of funding 

25 failed institution resolutions during 2008. At year end, the DIF 

investment portfolio yield was 4.59 percent, down 13 basis points from 

its December 31, 2007, yield of 4.72 percent. The yield decline 

stemmed largely from the sale of higher yielding securities during the 

third and fourth quarters. In addition, the DIF ended the year with a 

relatively high overnight investment balance of $971 million, earning 

ultra-low yields. The relatively high year-end overnight investment 

balance was largely attributable to the receipt of $867 million in 

assessment revenue on December 30, 2008. 

• The newly established Debt Guarantee Program investment portfolio 

totaled $2.425 billion on December 31, 2008, with all funds invested in 

overnight investments. 

• Conventional Treasury market yields declined dramatically during the 

fourth quarter of 2008. The deepening economic crisis and financial 

market turmoil prompted a flight to quality with burgeoning investor 

demand for Treasury securities; the yield declines also reflect the fact 

that during the fourth quarter, the Federal Open Market Committee 

(FOMC) cut the federal funds target rate three times, reducing it from 2 

percent to a range of zero to 25 basis points. During the first quarter of 

2009, Treasury yields are expected to continue to be volatile as market 

participants gauge whether financial and economic market turmoil is 

subsiding, prompting Treasury prices to fall with corresponding higher 

Treasury market yields; or whether financial and economic market 

turmoil is deepening, prompting further flight-to-quality Treasury price 

rallies and corresponding lower Treasury yields. 
4

Trends and Outlook

Financial Results Comments 

III. Budget • Approximately $1.05 billion was spent in the Ongoing Operations 

component of the 2008 Corporate Operating Budget, which was $12 

million (1 percent) below the budget for the year. Spending in the 

Outside Services - Personnel expense category, which was 

approximately $11 million below the annual budget, accounted for most 

of this variance. 

• Approximately $150.5 million was spent in the Receivership Funding 

component of the 2008 Corporate Operating Budget, which exceeded 

the approved annual budget by $0.5 million (0.3 percent). More than 

half of the annual spending occurred during the fourth quarter, although 

the majority (53 percent) was for continuing receivership management 

workload associated with failures that occurred during the first nine 

months of the year. 

• Authorized staffing increased by 19 percent, from 4,810 at the 

beginning of the year to 5,721 at the end of 2008. This increase was 

attributable primarily to increased resolution and receivership 

management activity and the elevated examination workload that 

resulted from a rise in the number of troubled institutions. In December 

2008, the Board approved a further increase in authorized staffing for 

2009, to 6,269. Approximately 78 percent of the additional positions 

approved for 2008 and 2009 are non-permanent. 

I. Corporate Fund Financial Statement Results (See pages 11 - 12 for detailed data and charts.)

Deposit Insurance Fund (DIF) 

• The accounting for the transactions of the TLGP will have no impact to the DIF. Any losses 

incurred by the DIF will be recovered from fees collected from participating institutions in the 

TLGP as well as any special assessments imposed on all insured depository institutions. Fees 

received/accrued by FDIC as a result of the program will be held in reserve (deferred revenue) 

and used solely for the payment of any losses arising from the program. However, when losses 

are recognized the amount will be charged to expense and an equal amount of deferred revenue 

will be recognized as revenue to cover the loss. 

• For 2008, the DIF’s comprehensive loss was $33.524 billion compared to comprehensive 

income of $2.248 billion during 2007. This year-over-year decrease of $35.772 billion was 

primarily due to a $40.131 billion increase in the provision for insurance losses offset in part by 

a $2.322 billion increase in assessment revenue; a $1.766 billion increase in the unrealized gain 

on available-for-sale securities; and a $775 million increase in the realized gain on sale of 

securities. 

• The provision for insurance losses was $40.226 billion in 2008. The total provision consists 

mainly of the provision for future failures ($22.244 billion) and the losses estimated at failure 
5

for the 25 resolutions occurring during 2008 ($17.873 billion), the largest of which was the 

$10.725 billion estimated loss for the IndyMac resolution. 

• Assessment revenue was $2.965 billion for 2008 compared with $643 million for 2007. This 

increase of $2.322 billion was mostly due to the reduction in the amount of one-time 

assessment credits available for use. In 2008, $1.446 billion in one-time credits offset $4.410 

billion in gross assessment premiums; whereas in the previous year, $3.088 billion in one-time 

credits were applied against $3.731 billion in gross assessment premiums. 

• Net receivables from resolutions increased by $1.352 billion to $15.766 billion during the 

fourth quarter of 2008. This increase was mostly due to an increase of $2.360 billion in net 

subrogated accounts (claims against the receivership) for the 12 failures in the fourth quarter 

and $1 billion in funding provided to the IndyMac conservatorship. Partially offsetting these 

increases was a $1.825 billion increase in the allowance for loss on the IndyMac resolution. 

FSLIC Resolution Fund (FRF)

 

• FRF’s net loss was $63 million for the fourth quarter of 2008 compared to a $74 million net 

loss during the prior quarter. The net loss was primarily due to the recognition of $87 million 

in losses for three Goodwill judgments, offset by $17 million in tax benefit recoveries. 

II. Investments

Investment Results (See pages 13 - 14 for detailed data and charts.) 

• The amortized cost (book value) of the DIF investment portfolio decreased dramatically, 

dropping by $23.889 billion, or 47.3 percent, from $50.469 billion on December 31, 2007, to 

$26.580 billion on December 31, 2008. The DIF portfolio’s market value dropped by $23.548 

billion or by 45.0 percent, from $52.378 billion on December 31, 2007, to $28.830 billion on 

December 31, 2008. The declines were primarily the result of funding failed institution 

resolutions during 2008. 

• The DIF investment portfolio's total return for 2008 was 8.55 percent, approximately 278 basis 

points less than its benchmark, the Merrill Lynch 1 - 10 Year U.S. Treasury Index (Index), 

which had a total return of 11.33 percent during 2008. The DIF portfolio’s large cash balances 

held during the first half of the year acted as a drag on total return performance. In addition, 

the DIF portfolio’s Treasury Inflation-Protected Securities (TIPS) considerably 

underperformed the Index’s conventional Treasury securities. Finally, as the DIF 

conventional Treasury securities have a lower average duration than the securities held in the 

Index, the extraordinary conventional Treasury security rally during the second half of 2008, 

which certainly benefited the DIF’s return, benefited the Index’s return even more as a result 

of its longer average duration. 

• During the fourth quarter of 2008, to help fund resolution-related cash outlays, staff sold a 

total of 19 securities on three occasions. These securities had a total book value of $4.328 

billion, a total market value of $4.630 billion, a weighted average duration of 6.09 years, a 

weighted average maturity of 8.12 years, and a weighted average effective yield-at-cost of 

4.95 percent. These security sales resulted in a realized gain of $302 million. On December 
6

31, 2008, the DIF portfolio’s overnight investment balance was $971.1 million, largely 

reflecting the receipt of $867 million in assessments on December 30, 2008. 

The Treasury Market 

• During the fourth quarter of 2008, conventional Treasury market yields decreased 

dramatically; along with the impact of the FOMC’s three rate cuts, the deepening economic 

crisis and financial market turmoil prompted a flight to quality with burgeoning investor 

demand for Treasury securities. The three-month Treasury bill (T-Bill) and the six-month TBill yields decreased by 82 basis points and 135 basis points, respectively. The two-year 

Treasury note, which also is very sensitive to actual and anticipated changes in the federal 

funds rate, as well as to flight-to-quality concerns, posted a yield decline of 120 basis points 

during the fourth quarter. Intermediate- to longer-maturity Treasury security yields declined 

even more than shorter-maturity securities, with investors’ abating inflationary concerns 

contributing to the yield declines. The yield on the five-year Treasury note declined by 143 

basis points, while the yield on the ten-year note dropped by 161 basis points. The 

conventional Treasury yield curve flattened during the fourth quarter of 2008, reflecting the 

dramatic drop in yields on longer-maturity Treasuries; on December 31, 2008, the two- to tenyear yield curve had a 154-basis point positive spread (compared to positive 186-basis point 

spread at the beginning of the quarter). Over the past five years, this spread has averaged 85 

basis points.

Prospective Strategies 

• The first quarter 2009 DIF investment strategy calls for placing all net proceeds from deposit 

insurance assessments, maturing securities, coupon and other interest payments, and 

receivership dividends into overnight investments and/or short-term T-Bills in anticipation of 

potential resolution activity. (See attached Approved Investment Strategy.) 

• For the newly established Debt Guarantee Program investment portfolio the first quarter 2009 

investment strategy calls for investing all available funds in overnight investments, and/or in 

conventional or callable Treasury securities with effective maturity dates not to exceed June 

30, 2012. An investment strategy likely to be implemented during the first and second 

quarters of 2009 will be to start developing a relatively even laddered maturity distribution out 

to June 30, 2012.

III. Budget Results (See pages 15 – 16 for detailed data.) 

Approved Budget and Staffing Modifications 

The Deputy to the Chairman and Chief Financial Officer (CFO) approved five modifications to 

the 2008 Corporate Operating Budget and/or authorized staffing during the quarter, in 

accordance with authority delegated by the Board of Directors in the 2008 Budget Resolution: 

• In October 2008, the CFO approved an increase of 100 authorized positions for the Legal 

Division, of which 76 were to support increased resolutions and receivership management 

workload. A total of 94 of the 100 new positions are non-permanent. 
7

• The CFO also approved in October 2008 the reallocation of existing budget authority 

among eight divisions/offices and among most major expense categories within the 

Receivership Funding budget component to reflect updated 2008 expense projections. The 

most significant was the reallocation of $6.5 million in budget authority from the Division 

of Resolutions and Receiverships (DRR) to the Division of Information Technology (DIT) 

to contract for data management services in conjunction with the large volume of 

downloaded data from insured institutions. In addition, approximately $2.9 million in 

budget authority was reallocated from the Legal Division to five divisions and offices to 

provide additional resources for Salaries and Compensation and Travel in those 

organizations. 

• In November 2008, the CFO approved a request to reallocate approximately $1.2 million of 

budget authority within the Receivership Funding budget component of the Corporate 

Operating Budget from the Buildings expense category of the Division of Administration 

(DOA) budget to the Equipment expense category of the DIT budget. These funds were 

required to purchase equipment for the new temporary West Coast Satellite Office 

(WCSO). 

• In December 2008, the CFO approved a request to reallocate $2.6 million of budget 

authority among divisions and offices within the Salaries and Compensation expense 

category of the Ongoing Operations budget. The Division of Supervision and Consumer 

Protection (DSC) received $2.1 million to cover unbudgeted expenses associated with the 

2008 Annual Leave Buy-Back Program. Corporate University (CU) received $350,000 for 

unbudgeted Salaries and Compensation expenses for detailees to CU from other 

organizations and for the extended assignment of Financial Institutions Specialists in the 

first year Corporate Employee Program to DRR to assist with increased bank closing 

activities. Three smaller organizations received a combined total of $150,000 for projected 

shortfalls also caused by detailees and other factors. Offsetting reductions were made in the 

budgets of the Legal Division ($1.0 million), DRR ($1.0 million), and the Division of 

Finance ($600,000). Funds were available in the budgets of these organizations because of 

vacancies in budgeted positions. 

• In December 2008, the CFO approved a request to add $17 million in Receivership Funding 

budget authority to the Outside Services – Personnel expense category of the DRR budget. 

This was offset by reductions of $13 million in DRR’s budget for Salaries and 

Compensation, $1.5 million in the Legal Division’s budget for Salaries and Compensation, 

and $2.5 million in the Legal Division’s Outside Services – Personnel budget. The 

reallocated budget authority from the Salaries and Compensation expense category was 

available due to vacancies in budgeted positions. The excess budget authority in the Legal 

Division’s Outside Services – Personnel budget was attributable to lower-than-anticipated 

spending for outside legal counsel services. 

One modification was made during the fourth quarter to estimated 2008 spending for an 

approved Investment Budget project. In November 2008, estimated 2008 spending for the 

CDR Call Development investment project was reduced by approximately $644,000. These 

funds are available for use in future years in accordance with the Board resolution establishing 

the multi-year investment budget for the project. A detailed quarterly report on the status of IT 

investment projects, including the CDR Call Development project, is provided separately to the 

Board by the Capital Investment Review Committee (CIRC). 
8

Significant Spending Variances 

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

below. Significant spending variances for the year ending December 31, 2008, are defined as 

those that either (a) exceed the annual budget for a major expense category or total 

division/office budget, or (b) are under the annual budget for a major expense category or 

division/office by an amount that exceeds $1 million and represents more than three 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 six major expense categories for the year in the 

Ongoing Operations component of the 2008 Corporate Operating Budget: 

• Salaries and Compensation expenditures were $293,000 greater than budgeted. This 

overage equates to only 0.04 percent of the budget in this expense category. 

 

• Outside Services-Personnel expenditures were approximately $11 million, or 6 percent, less 

than budgeted. The variance was largely due to lower-than-anticipated litigation expenses 

reimbursed to the U.S. Department of Justice for the Goodwill cases; a decision by DIT to 

reduce contract spending on discretionary IT efforts because of competing workload 

priorities; the continuing delay in starting the interagency SNC Modernization project; and 

the deferral of plans to conduct an Identity Theft Media Campaign. 

• Buildings expenditures were $804,000, or 1 percent, greater than budgeted, largely due to 

significant increases in property taxes and utilities that could not be fully absorbed within 

the approved budget authority for this expense category. 

• Equipment expenditures were approximately $2 million, or 5 percent, more than budgeted, 

primarily due to higher-than-expected maintenance costs for commercial software licenses 

required to support the large increase in FDIC’s staff and contractors during 2008. 

• Outside Services-Other expenditures were approximately $3 million, or 13 percent, less 

than budgeted. The variance was largely due to delayed execution of contracts for the 

FDIC’s 75th Anniversary Public Education and public service announcement campaigns. 

• Other Expenses were approximately $1 million, or 10 percent, less than budgeted. The 

variance was largely due to under spending of budgeted allowances for Professional 

Learning Accounts. 

Receivership Funding

The Receivership Funding component of the 2008 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. There 

were five major expense categories in which significant spending variances occurred for the 

year in the Receivership Funding component of the 2008 Corporate Operating Budget: 
9

 

 

• Outside Services-Personnel expenditures were approximately $7 million, or 8 percent, 

greater than budgeted. This variance largely reflected the high level of contractor expenses 

paid by DRR for receivership management support during the fourth quarter for institutions 

that failed during the first nine months of the year. Substantially higher contract expenses 

were paid in December for the receiverships associated with those failures than were paid in 

October and November. This appears to reflect a failure to track obligations that had been 

incurred earlier in the year and to enter invoices promptly into the accounting system for 

processing. As a result, no additional budget authority was requested to cover these 

contractor expenses. DRR, DOA, and the Division of Finance (DOF) are working together 

to improve tracking and coding of contract expenses for receivership management contracts 

in 2009. 

• Buildings expenditures were approximately $3 million, or 22 percent, less than budgeted 

due to delays in the build-out of the temporary WCSO. 

• Equipment expenditures were $59,000, or 0.5 percent, greater than budgeted, due to the 

purchase of IT equipment to support the temporary WCSO. 

• Outside Services-Other expenditures were approximately $1 million, or 64 percent, greater 

than budgeted, primarily due to the unanticipated increases in various receivership and 

resolution expenses during the year. These expenses included telephone lines for call-in 

centers, real estate and personal property taxes, filing fees and other court costs, advertising 

costs, and bank service fees. 

• Other Expenses were approximately $5 million, or 53 percent, less than budgeted, primarily 

due to under spending in the Other Expenses account for miscellaneous receivership costs. 

Significant Spending Variances by Division/Office1

Seven organizations had significant spending variances for the full 2008 fiscal year: 

• DRR spent approximately $10.9 million, or 7 percent, more than budgeted, including $9.9 

million more than budgeted in the Receivership Funding component of its 2008 operating 

budget. This was attributable primarily to higher contractor expenses than expected. DRR 

also spent approximately $0.7 million, or 776 percent, more than estimated during 2008 for 

approved investment projects, including both the 4C and Claims Administration System 

(CAS) investment projects.2 

• Executive Support Offices spent approximately $3.3 million, or 11 percent, less than 

budgeted. This variance was largely due to delayed execution of contracts for the FDIC’s 

75th Anniversary Public Education and public service announcement campaigns. 

1

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

2

 A detailed quarterly report on the status of IT investment projects, including the CAS and 4C projects, is provided 

separately to the Board by the CIRC. 
10

 

• The Office of Inspector General spent approximately $2.4 million, or 9 percent, less than 

budgeted. This variance was primarily due to vacancies in budgeted positions during the 

year. 

• The Executive Offices spent approximately $1.2 million, or 14 percent, less than budgeted. 

This variance was primarily due to lower-than-anticipated costs for the annual audit by 

GAO. 

• DSC spent approximately $0.2 million, or 0.04 percent, more than budgeted. 

• DIT spent approximately $4.2 million, or 15 percent, less than estimated for investment 

projects during the year. This was primarily attributable to $3.9 million in under spending 

for the multi-year CAS investment project due to delays by the contractor in meeting 

project milestones. [Note: This unused Investment Budget authority will be carried over 

for use in future periods, but may be used only for CAS.]3

 

• The Division of Insurance and Research (DIR) spent approximately $0.1 million, or 15 

percent, more than estimated for investment projects. This was attributable to spending 

slightly more than estimated for 2008 on the CDR Call Development investment project.4

 

However, total spending for the project is within the multi-year investment budget 

approved for this project. 

3

 A detailed quarterly report on the status of IT investment projects, including the CAS, is provided separately to the Board 

by the CIRC. 

4

 A detailed quarterly report on the status of IT investment projects, including the CDR Call Development project, is 

provided separately to the Board by the CIRC. 
FDIC CFO REPORT TO THE BOARD – Fourth Quarter 2008

Fund Financial Results ($ in Millions) - Unaudited

11

Balance Sheet

Unaudited 

Dec-08 Sep-08

Cash & cash equivalents - unrestricted $ 1,011 $ 854 $ 157 $ 4,245 $ (3,234)

Cash & cash equivalents - restricted - systemic risk 2,377 0 2,377 0 2,377 

Investment in U.S. Treasury obligations, net 27,859 32,559 (4,700) 46,588 (18,729)

Assessments receivable, net 1,019 890 129 245 774 

Receivables - systemic risk 1,138 0 1,138 0 1,138 

Interest receivable on investments and other assets, net 405 472 (67) 768 (363)

Receivables from resolutions, net 15,766 14,414 1,352 808 14,958 

Property, buildings and other capitalized assets, net 369 364 5 351 18 

Total Assets $ 49,944 $ 49,553 $ 391 $ 53,005 $ (3,061)

Accounts payable and other liabilities 4,857 2,923 1,934 152 4,705 

Deferred revenue - systemic risk 2,827 0 2,827 0 2,827 

Postretirement benefit liability 114 116 (2) 116 (2)

Contingent Liabilities: future failures 22,368 11,726 10,642 124 22,244 

Contingent Liabillties: systemic risk 689 0 689 0 689 

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

Total Liabilities $ 31,055 $ 14,965 $ 16,090 $ 592 $ 30,463 

FYI: Unrealized gain on available-for-sale securities, net 2,250 1,699 551 359 1,891 

FYI: Unrealized postretirement benefit gain 25 19 6 19 6 

FUND BALANCE $ 18,889 $ 34,588 $ (15,699) $ 52,413 $ (33,524)

Income Statement 

Unaudited 

Dec-08 Sep-08

Assessments earned $ 2,965 $ 1,969 $ 996 $ 643 $ 2,322 

Systemic risk revenue 715 0 0 0 715 

Interest earned on investment securities 2,072 1,795 277 2,540 (468)

Other revenue 31 18 13 14 17 

Realized gain on sale of securities 775 473 302 0 775 

Total Revenue $ 6,558 $ 4,255 $ 2,303 $ 3,197 $ 3,361 

Operating expenses (includes depreciation expense) 1,033 743 290 993 40 

Systemic risk expenses 715 0 715 0 715 

Provision for insurance losses 40,226 22,676 17,550 95 40,131 

Other expenses 4 1 3 3 1 

Total Expenses & Losses $ 41,978 $ 23,420 $ 18,558 $ 1,091 $ 40,887 

Net (Loss)/Income $ (35,420) $ (19,165) $ (16,255) $ 2,106 $ (37,526)

Unrealized gain/(loss) on available-for-sale securities, net 1,891 1,340 551 125 1,766 

Unrealized postretirement benefit gain/(loss) 5 0 5 17 (12)

YTD Comprehensive (Loss)/Income $ (33,524) $ (17,825) $ (15,699) $ 2,248 $ (35,772)

 

Deposit Insurance Fund

Deposit Insurance Fund

Year-Over-Year

Change

Quarterly 

Quarterly

Change

Dec-07 Change

Dec-07

 Year-Over-Year

Change

FDIC Investment Portfolio as of 12/31/2008 

 ($ in billions)

Overnight 

Investments, 

$0.971, 3%

Available-forSale 

Securities,

 $28.256, 97%

Total Market Value = 

$29 billion

FDIC Investment Portfolio as of 9/30/2008 

 ($ in billions)

Overnight 

Investments, 

$0.851, 3%

Available-forSale 

Securities, 

$33.013, 97%

Total Market Value =

$34 billion

DIF Fund Balance and Estimated Insured Deposits

$52 $53

$45

$19

$35

$4,292 $4,438

$4,468

$4,548 $4,760

$15

$20

$25

$30

$35

$40

$45

$50

$55

$60

4th Qtr. 07 1st Qtr. 08 2nd Qtr. 08 3rd Qtr. 08 4th Qtr. 08

 Fund Balance 

 ($ in Billions)

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

$5,500

$6,000

 Estimated Insured Deposits 

($ in Billions)

Fund Balance Estimated Insured Deposits

Reserve ratio: 1.22% 1.19% 1.01% 0.76% 0.40% 
12

Fund Financial Results - continued ($ in Millions ) - Unaudited

$20.8

Statements of Cash Flows 

Unaudited 

Dec-08 Sep-08

Net (Loss)/Income $ (35,420) $ (19,165) $ (16,255) $ 2,106 $ (37,526)

Amortization of U.S. Treasury obligations (unrestricted) 457 370 87 571 (114)

TIPS Inflation Adjustment (272) (313) 41 (314) 42 

Depreciation on property and equipment 55 41 14 63 (8)

Provision for insurance losses 40,226 22,676 17,550 95 40,131 

Unrealized gain on postretirement benefits 5 0 5 0 5 

(Gain) on sale of UST obligations (775) (473) (302) 17 (792)

Systemic risk expenses (2) 0 (2) 0 (2)

Net change in operating assets and liabilities (26,336) (22,308) (4,028) (668) (25,668)

Net Cash (Used by) Provided by Operating Activities $ (22,062) $ (19,172) $ (2,890) $ 1,870 $ (23,932)

Investments matured and sold 21,209 15,784 5,425 7,626 13,583 

Investments purchased (includes purchase of property and 

equipment) (4) (3) (1) 8,205 (8,209)

Net Cash Provided by (Used by) Investing Activities $ 21,205 $ 15,781 $ 5,424 $ (579) $ 21,784 

Net Increase (Decrease) in Cash and Cash Equivalents (857) (3,391) 2,534 1,291 (2,148)

Cash and Cash Equivalents at beginning of year 4,245 4,245 0 2,954 1,291 

 Unrestricted Cash and Cash Equivalents - Ending 1,011 854 157 4,245 (3,234)

 Restricted Cash and Cash Equivalents - Ending 2,377 0 2,377 0 2,377 

Cash and Cash Equivalents - Ending $ 3,388 $ 854 $ 2,534 $ 4,245 $ (857)

Selected Financial Data

Unaudited 

Dec-08 Sep-08

Cash and cash equivalents $ 3,467 $ 3,459 $ 8 $ 3,617 $ (150)

Accumulated deficit, net (123,948) (123,885) (63) (123,770) (178)

Resolution equity 3,494 3,470 24 3,648 (154)

Total revenue $ 63 $ 60 $ 3 $ 188 $ (125)

Operating expenses 3 4 (1) 3 0 

Goodwill/Guarini litigation expenses 254 167 87 196 58 

Net (Loss)/Income $ (178) $ (115) $ (63) $ 64 $ (242)

Deposit Insurance Fund

Change Dec-07

Quarterly Year-Over-Year

Change

Year-Over-Year

Change

FSLIC Resolution Fund

Quarterly

Change Dec-07

 Receivership Selected Statistics December 2008 vs. December 2007

Year-to-Date ($ in millions) Dec-08 Dec-07 Change Dec-08 Dec-07 Change Dec-08 Dec-07 Change

Total Receiverships 41 22 19 8 13 (5) 49 35 14

Assets in Liquidation 15,073$ 875$ 14,198 34 $ 32 $ 2 15,107$ $ 14,200 907

Collections $ 1,207$ 1,858 651 7 $ 39 $ (32) 1,865$ 1,246$ 619

Dividends Paid-Cash 1,553$ 1,647$ (94) 4 $ 5$ (1) 1,557 $ 1,652$ (95)

DIF FRF ALL FUNDS

 2008 Bank Failures by State, Number of Banks, and Total Assets

WV., 1, $100

AR., 1, $2,011

NV., 3, $304,171

TX., 2, $4,979

MO., 2, $70

MN., 1, $53

MI., 1, $102

KS, 1, $726

IL., 1, $37

CA., 5, $45,716

FL., 2, $517

GA., 5, $2,854

Dollars in Millions Total number of bank failures for 

2008 was 25.

The combined total assets for all bank

failures was $361 billion.

The combined total estimated losses 

was $18 billion.

The majority of the assets that were 

retained are concentrated in 

commercial loans ($2.8 billion), 

commercial real estate ($6.2 billion), 

and ressidential loans ($2.6 billion).
13

12/31/08 12/31/07 Change

Par Value $25,496 $47,562 ($22,066)

Amortized Cost $26,580 $50,469 ($23,889)

Market Value $28,830 $52,378 ($23,548)

Primary Reserve 1 $29,227 $14,317 $14,910

Primary Reserve % of Total Portfolio 100.0% 26.9% 73.1%

Year-to-Date Total Return (Portfolio) 8.550% 8.629% not applicable

Year-to-Date Total Return (Benchmark) 2 11.334% 8.861% not applicable

Total Return Variance (in basis points) (278.4) (23.2) not applicable

Yield-to-Maturity 3 4.59% 4.72% (0.13%)

Weighted Average Maturity (in years) 3.34 4.06 (0.72)

Effective Duration (in years) 4 

 Total Portfolio 2.85 3.19 (0.34)

 Available-for-Sale Securities 2.94 1.29 1.65

 Held-to-Maturity Securities 5 not applicable 3.94

12/31/08 12/31/07 Change

Book Value 6 $3,447 $393 $3,054

Yield-to-Maturity 1.21% 4.22% (3.01%)

Weighted Average Maturity (in days) 23 19 4

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.

6

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

4

 For each TIPS, an estimated 80 percent "yield beta" factor is applied to its real yield duration to arrive at an estimated 

effective duration.

National Liquidation Fund (NLF) Investment Portfolio Summary

(Dollar Values in Millions)

5

 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 posititive intent and ability to hold its HTM securities until their 

maturity dates.

Deposit Insurance Fund Portfolio Summary

(Dollar Values 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.

U.S. Treasury Security Yield Curve

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

3

Month

6

Month

1Year

2

Year

3

Year

4

Year

5

Year

7

Year

10

Year

09/30/08 Conventional

12/31/08 Conventional
14

Invest all proceeds from deposit insurance assessments, maturing securities, coupon and other interest 

payments, and receivership dividends in overnight investments and/or in short-term Treasury bills in 

anticipation of using such funds for resolution activities.

No changes in strategy.

Strategy as of 4th Quarter 2008

Invest all debt guarantee fee proceeds in overnight investments and/or in short-term Treasury bills.

Strategy Changes for 1st Quarter 2009

Strategically invest all available funds in overnight investments and/or in conventional or callable Treasury 

securities with effective maturity dates not to exceed June 30, 2012. 

NATIONAL LIQUIDATION FUND

Maintain a target overnight investment balance between $20 million and $25 million.

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

No changes in strategy.

Strategy Changes for 1st Quarter 2009

Approved Investment Strategies

Strategy as of 4th Quarter 2008

Strategy as of 4th Quarter 2008

DEPOSIT INSURANCE FUND

Strategy Changes for 1st Quarter 2009

DEBT GUARANTEE PROGRAM
15

1) Budgets for investment projects are approved on a multi-year basis; the year-to-date budget amount reflects the 2008 spending estimates 

for approved projects. 

YTD YTD % of 

Major Expense Category Budget Expenditures Budget Used Variance

Corporate Operating Budget 

Ongoing Operations

Salaries & Compensation $691,665 $691,958 100% $293

Outside Services - Personnel 173,735 162,658 94% (11,077)

Travel 64,080 63,945 100% (135)

Buildings 55,607 56,411 101% 804

Equipment 45,382 47,656 105% 2,274

Outside Services - Other 24,259 21,188 87% (3,071)

Other Expenses 12,076 10,882 90% (1,194)

Total Ongoing Operations $1,066,804 $1,054,698 99% ($12,106)

Receivership Funding

Salaries & Compensation $12,912 $12,280 95% ($632)

Outside Services - Personnel 92,648 99,999 108% 7,351

Travel 9,771 9,487 97% (284)

Buildings 11,910 9,254 78% (2,656)

Equipment 12,440 12,499 100% 59

Outside Services - Other 1,759 2,886 164% 1,127

Other Expenses 8,560 4,059 47% (4,501)

Total Receivership Funding $150,000 $150,464 100% $464

Total Corporate Operating Budget $1,216,804 $1,205,162 99% ($11,642)

Investment Budget 1 $29,444 $25,687 87% ($3,757)

Grand Total $1,246,248 $1,230,849 99% ($15,399)

(Dollars in Thousands)

Executive Summary of 2008 Budget and Expenditures

by Major Expense Category

Through December 31, 2008
16

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 2008 spending estimates 

for approved projects. 

YTD YTD % of 

Division/Office Budget Expenditures Budget Used Variance

 Corporate Operating Budget 

 Supervision & Consumer Protection $422,165 $422,336 100% $171

 Information Technology 209,078 208,758 100% (320)

 Administration 172,655 167,204 97% (5,451)

 Resolutions & Receiverships 150,889 161,094 107% 10,205

 Legal 86,269 85,939 100% (330)

 Insurance & Research 34,092 33,052 97% (1,040)

 Finance 29,391 28,604 97% (787)

 Inspector General 26,296 23,872 91% (2,424)

 Corporate University 37,741 37,042 98% (699)

 Executive Support 1 29,015 25,709 89% (3,306)

 Executive Offices 2 8,194 7,041 86% (1,153)

 Government Litigation 11,019 4,511 41% (6,508)

 Total Corporate Operating Budget $1,216,804 $1,205,162 99% ($11,642)

 Investment Budget 3

 Information Technology $28,571 $24,350 85% ($4,221)

 Resolutions & Receiverships 85 745 876% 660

 Insurance & Research 513 592 115% 79

 Corporate University 275 0 0% (275)

 Total Investment Budget 3 $29,444 $25,687 87% ($3,757)

 Combined Division/Office Budgets

 Supervision & Consumer Protection $422,165 $422,336 100% $171

 Information Technology 237,649 233,108 98% (4,541)

 Administration 172,655 167,204 97% (5,451)

 Resolutions & Receiverships 150,974 161,839 107% 10,865

 Legal 86,269 85,939 100% (330)

 Insurance & Research 34,605 33,644 97% (961)

 Finance 29,391 28,604 97% (787)

 Inspector General 26,296 23,872 91% (2,424)

 Corporate University 38,016 37,042 97% (974)

 Executive Support 1 29,015 25,709 89% (3,306)

 Executive Offices 2 8,194 7,041 86% (1,153)

 Government Litigation 11,019 4,511 41% (6,508)

 Grand Total $1,246,248 $1,230,849 99% ($15,399)

(Dollars in Thousands)

Executive Summary of 2008 Budget and Expenditures

by Budget Component and Division/Office

Through December 31, 2008