Federal Deposit Insurance Corporation

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

 August 30, 2018

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: Second Quarter 2018 CFO Report to the Board 

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

June 30, 2018.

Executive Summary

 During the second quarter of 2018, the Deposit Insurance Fund (DIF) balance increased by $2.5 

billion, from $95.1 billion at March 31, 2018 to $97.6 billion at June 30, 2018. The quarterly 

increase was primarily due to $2.6 billion of assessment revenue.

 The reserve ratio, which is the ratio of the DIF balance to estimated insured deposits, was 1.33

percent for second quarter 2018, compared to the first quarter 2018 reserve ratio of 1.30 percent.

 There were no financial institution failures during the second quarter of 2018; the last failure 

occurred on December 15, 2017.

 Through June 30, 2018, overall FDIC Operating Budget expenditures were below budget by 7 

percent ($73 million). This variance was primarily the result of vacancies in budgeted positions, 

delays in purchasing equipment for the backup data center, and lower-than-budgeted spending for 

contractual services and outside legal counsel.
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I. Financial Results (See pages 6 – 7 for detailed data and charts.)

Deposit Insurance Fund 

 For the six months ending June 30, 2018, the DIF’s comprehensive income totaled $4.8 billion 

compared to comprehensive income of $4.4 billion for the same period last year. This $415 million 

increase was primarily the result of a $738 million decrease in provision for insurance losses and a 

$241 million increase in interest on U.S. Treasury securities, partially offset by a $653 million 

reduction to comprehensive income from unrealized losses on U.S. Treasury securities (year-todate 2018 unrealized loss of $658 million versus year-to-date 2017 unrealized loss of $5 million).

 The provision for insurance losses was a negative $206 million for the first half of 2018, compared 

to a positive $532 million for the same period last year. The negative provision for 2018 primarily 

resulted from reductions to the estimated losses for prior year failures, whereas the positive 

provision for 2017 was largely attributable to higher-than-anticipated estimated losses for current 

year failures, as compared to the related contingent liability at year-end 2016.

 During the first half of 2018, DIF incurred a $658 million unrealized loss on its portfolio of U.S. 

Treasury securities as a result of yields rising considerably across all investable maturity sectors of 

the Treasury yield curve. This rise resulted in declines in the securities’ market values relative to 

their book values.

Assessments

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

represented the estimate for the second quarter 2018 insurance coverage and $1.3 billion 

represented estimated surcharges on banks with $10 billion or more in assets. Additionally, the DIF 

recognized an $81 million adjustment for lower-than-estimated collections for the first quarter 2018 

insurance coverage (regular assessments: $75 million and surcharges: $6 million), which 

decreased assessment revenue. This adjustment was primarily due to lower-than-estimated 

assessment rates.

 On June 29, 2018, the FDIC collected $1.4 billion in DIF regular assessments and $1.3 billion in 

surcharge assessments for first quarter 2018 insurance coverage.

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

DIF Investment Portfolio

 On June 30, 2018, the total liquidity (also total market value) of the DIF investment portfolio stood 

at $92.3 billion, up $6.7 billion from its December 31, 2017, balance of $85.6 billion. During the 

first half of the year, interest revenue, receivership dividends, and deposit insurance assessment 

collections far exceeded resolution-related outlays and operating expenses.

 On June 30, 2018, the DIF investment portfolio’s yield was 1.78 percent, up 26 basis points from its 

1.52 percent yield on December 31, 2017. The new Treasury securities purchased during the first 

half of the year had higher yields than the maturing securities’ yields.

 In accordance with the approved second quarter 2018 DIF portfolio investment strategy, staff 

purchased a total of 29 short- to intermediate-maturity conventional Treasury securities, all 

designated as available-for-sale. The 29 securities had a total par value of $11.9 billion, a 

weighted average yield of 2.49 percent, and a weighted average maturity of 2.23 years.
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III. Budget Results (See pages 10 – 11 for detailed data.)

Approved Budget Modifications

The 2018 Budget Resolution delegated to the Chief Financial Officer (CFO) and selected other officials 

the authority to make certain modifications to the 2018 FDIC Operating Budget. The following budget 

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

the Board of Directors.

 In April 2018, after the Division of Finance conducted a review of spending in the salary and 

compensation accounts during the first quarter, the CFO approved budget reallocations in all 

divisions and offices, except the Executive Offices. In the Ongoing Operations budget 

components, reductions totaling approximately $12.3 million were made in the Salaries and 

Compensation accounts of most organizations to reflect unused spending during the first quarter. 

The Salaries and Compensation accounts of Corporate University - Corporate were increased by 

$4.9 million to provide adequate budget resources for employees detailed during the year, and 

the remaining $7.4 million was reallocated to the Corporate Unassigned contingency reserve. In 

the Receivership Funding budget component, small reductions totaling $57,707 were made in the 

Salaries and Compensation accounts of three divisions and the funds reallocated to the 

Corporate Unassigned contingency reserve.

 In April 2018, the Board of Directors approved a reallocation of $28 million from the Corporate 

Unassigned contingency reserve to Division of Information Technology (DIT), Office of Chief 

Information Security Officer (OCISO), and the CIO Council in the Ongoing Operations budget 

component. The funds are to support the Backup Data Center project and are mostly in the 

Equipment, $17.2 million, and Outside Services – Personnel, $10.1 million, expense categories. 

The remaining funds were reallocated to DIT in the Travel and Buildings expense categories.

 In May 2018, the CFO approved a $3.1 million budget increase to the Ongoing Operations 

budget component of OCISO. Additional funding of $1.7 million was provided in the Equipment 

expense category to augment the annual allowance for Hardware Technology Refreshment, and 

$1.4 million was added to the Outside Services – Personnel expense category to support a 

variety of security initiatives to address FISMA findings, establish metrics and reporting systems, 

and enhance incident response capabilities. Funding was provided by reallocating almost 

$200,000 from the Outside Services – Personnel expense category of the DIT and $2.9 million 

from the Corporate Unassigned contingency reserve to OCISO.

 In June 2018, the CFO approved mid-year budget adjustments that reallocated budget authority 

among several divisions and the Corporate Unassigned contingency reserve, as well as among 

expense categories within the divisions. In the Ongoing Operations budget component, budgets 

were reduced for two organizations and increased for two others: the Division of Administration 

or DOA (decreased by $2.3 million), the Office of Complex Financial Institutions or OCFI 

(decreased by $1.0 million), DIT (increased by $1.2 million), and OCISO (increased by 

$200,000). The reduction in the DOA budget primarily reflected lower-than-expected costs for 

electrical equipment replacement and construction delays for the F Street HVAC Retrofit Project. 

The reduction in the OCFI budget was due to the postponement of advisory services for a 

securities-for-claims exchange project. DIT received additional Equipment funding to meet its 

Technology Refreshment requirements, and OCISO received additional Outside Services –

Personnel funds to initiate a privacy continuous monitoring program. The Corporate Unassigned 

contingency reserve was increased by $1.9 million as a result of these adjustments. In the 

Receivership Funding budget component, a reallocation of $2.3 million was made from the 

Salary and Compensation expense category to the Outside Services – Personnel expense 

category within the Division of Resolutions and Receiverships. This reallocation reflected 

decreased estimates of overtime and larger-than-projected costs for contracts that support bank 
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closings. This adjustment resulted in no change to the Receivership Funding Corporate 

Unassigned contingency reserve.

Following these budget modifications, the balances in the Corporate Unassigned contingency reserves 

as of June 30, 2018, were $2,486,270 in the Ongoing Operations budget component and $23,908,578 

in the Receivership Funding budget component.

Approved Staffing Modifications

The 2018 Budget Resolution delegated to the CFO the authority to modify approved 2018 staffing 

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

approved 2018 FDIC Operating Budget. 

 In April, following consultation with the Chairman, the CFO approved an increase of five 

permanent authorized positions in the Office of the Chief Information Officer (CIO) to support 

the establishment of an enterprise IT strategy function within that office.

Spending Variances

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

below. Significant spending variances for the six months ending June 30, 2018, are defined as 

those that either (1) exceed the YTD budget by more than $2 million and represent more than 

three 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 $10 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 were two significant spending variances through the second quarter in major expense 

categories of the Ongoing Operations budget component of the 2018 FDIC Operating Budget:

Outside Services – Personnel expenditures were $14.4 million, or 12 percent, below budget. This 

was the result of under-spending by several organizations:

 DIT spent $3.8 million less than budgeted due to delays in beginning several initiatives, a 

delay in paying award fees for the infrastructure services contract, and under-accrual of 

expenses on certain contracts.

 The CIO Council spent $2.8 million less than budgeted due to delays in starting application 

remediation activities for the Backup Data Center project and lower-than-projected 

expenses for systems maintenance and operations.

 DOA spent $2.6 million less than budgeted for background investigations.

 The Division of Depositor and Consumer Protection deferred spending on several 

contracts until the second half of the year.

Equipment expenditures were $18.5 million under budget, mostly due to delays in equipment 

purchases for the backup data center and technology refreshment.
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Receivership Funding

The Receivership Funding component of the 2018 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 were no significant spending variances through the second quarter in any major expense 

category of the Receivership Funding budget component of the 2018 FDIC Operating Budget.

Office of Inspector General

There were no significant spending variances through the second quarter in any major expense 

category of the Office of Inspector General budget component of the 2018 FDIC Operating 

Budget.

Significant Spending Variances by Division/Office1

One organization had a significant spending variance through the end of the second quarter.

DIT had a significant spending variance of $21 million, or 17 percent, through the end of the 

second quarter, mostly due to delays in the acquisition of equipment and contractual services for 

the backup data center, the acquisition of equipment from the technology refreshment allowance, 

and a delay in the payment of contract award fees for the infrastructure services contract.

 

1

Information on division/office variances reflects variances in the FDIC Operating Budget.
Fund Financial Results ($ in Millions) 

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During the first half of 2018, 25 

securities matured totaling $12.6 

billion (par value) with a weighted 

average yield of 1.18%. In this same 

period, 52 securities were purchased 

totaling $19.6 billion (par value) with 

a weighted average yield of 

2.39%. The FDIC was able to 

benefit from the rising rate 

environment by purchasing higher 

yielding securities than those that 

had matured.

Balance Sheet

Quarterly Year-Over-Year

Jun-18 Mar-18 Change Jun-17 Change

Cash and cash equivalents $ 3,535 $ 3,119 $ 416 $ 3,362 $ 173

Investment in U.S. Treasury securities 88,300 84,831 3,469 75,043 13,257

Assessments receivable, net 2,679 2,783 (104) 2,677 2

Interest receivable on investments and other assets, net 558 581 (23) 399 159

Receivables from resolutions, net 3,711 5,194 (1,483) 8,944 (5,233)

Property and equipment, net 321 325 (4) 324 (3)

Total Assets $ 99,104 $ 96,833 $ 2,271 $ 90,749 $ 8,355

Accounts payable and other liabilities 232 200 32 242 (10)

Liabilities due to resolutions 905 1,154 (249) 2,535 (1,630)

Postretirement benefit liability 259 259 - 232 27

Contingent liability for anticipated failures 85 113 (28) 117 (32)

Contingent liability for litigation losses and other 35 35 0 35 0

Total Liabilities $ 1,516 $ 1,761 $ (245) $ 3,161 $ (1,645)

FYI: Unrealized gain (loss) on U.S. Treasury securities, net (1,137) (975) (162) 16 (1,153)

FYI: Unrealized postretirement benefit (loss) gain (46) (46) - (26) (20)

Fund Balance $ 97,588 $ 95,072 $ 2,516 $ 87,588 $ 10,000

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

Income Statement (year-to-date)

Quarterly Year-Over-Year

Jun-18 Mar-18 Change Jun-17 Change

Assessments $ 5,448 $ 2,850 $ 2,598 $ 5,371 $ 77

Interest on U.S. Treasury securities 719 338 381 478 241

Other revenue 5 1 4 6 (1)

Total Revenue $ 6,172 $ 3,189 $ 2,983 $ 5,855 $ 317

Operating expenses 878 433 445 892 (14)

Provision for insurance losses (206) (65) (141) 532 (738)

Insurance and other expenses 1 0 1 0 1

Total Expenses and Losses $ 673 $ 368 $ 305 $ 1,424 $ (751)

Net Income 5,499 2,821 2,678 4,431 1,068

Unrealized gain (loss) on U.S. Treasury securities, net (658) (496) (162) (5) (653)

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

Comprehensive Income $ 4,841 $ 2,325 $ 2,516 $ 4,426 $ 415

Deposit Insurance Fund Selected Financial Data

Quarterly Year-Over-Year

Jun-18 Mar-18 Change Jun-17 Change

Cash and cash equivalents $ 892 $ 889 $ 3 $ 881 $ 11

Accumulated deficit (124,597) (124,601) 4 (124,607) 10

Total resolution equity 893 889 4 882 11

Total revenue 7 3 4 3 4

Operating expenses 0 0 0 0 0

Losses related to thrift resolutions 0 0 0 0 0

Net Income (Loss) $ 7 $ 3 4 $ 3 4

FSLIC Resolution Fund

 ($ in millions) Jun-18 Jun-17 Change Jun-18 Jun-17 Change Jun-18 Jun-17 Change

Total Receiverships 302 372 (70) 0 0 - 302 372 (70)

Assets in Liquidation $ 1,537 $ 5,421 $ (3,884) $ 2 $ 2 $ - $ 1,539 $ 5,423 $ (3,884)

YTD Collections $ 993 $ 718 $ 275 $ - $ - $ - $ 993 $ 718 $ 275

YTD Dividend/Other Pmts - Cash $ 2,448 $ 1,402 $ 1,046 $ - $ - $ - $ 2,448 $ 1,402 $ 1,046

DIF FRF ALL FUNDS

Receivership Assets in Liquidation Balance at June 30, 2017

(in billions)

Receivership Assets in Liquidation Balance at June 30, 2018

(in billions)

Total Portfolio = $5.4 billion Total Portfolio = $1.5 billion
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6/30/18 12/31/17 Change

Par Value $93,092 $85,376 $7,716

Amortized Cost $93,079 $85,707 $7,372

Total Market Value (including accrued interest) $92,344 $85,590 $6,754

Primary Reserve 1 $92,344 $85,590 $6,754

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

Yield-to-Maturity 2 1.78% 1.52% 0.26%

Weighted Average Maturity (in years) 1.94 2.05 -0.11

Effective Duration (in years)

 Total Portfolio 1.86 1.97 -0.11

 Available-for-Sale Securities 1.97 2.07 -0.10

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

6/30/18 12/31/17 Change

FRF-FSLIC

 Book Value 4 $848 $842 $6

 Yield-to-Maturity 1.78% 1.20% 0.58%

 Weighted Average Maturity overnight overnight no change

6/30/18 12/31/17 Change

Book Value 5 $3,501 $4,733 ($1,232)

Effective Annual Yield 1.83% 1.24% 0.59%

Weighted Average Maturity (in days) 46 51 (5)

Deposit Insurance Fund Portfolio Summary

(Dollar Values in Millions)

1

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

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

National Liquidation Fund (NLF) Investment Portfolio Summary

(Dollar Values in Millions)

3

 In early August 2008, management reclassified all of the DIF portfolio's HTM securities as AFS securities effective as of 

June 30, 2008, because the FDIC could no longer assert it had the positive intent and ability to hold its HTM securities until 

their maturity dates.

5

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

Summary of Other Corporate Investment Portfolios

(Dollar Values in Millions)

4

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

purposes.

2

 The Yield-to-Maturity includes the potential yields of any Treasury Inflation-Protected Securities (TIPS), which assumes an 

average 2.0% annual increase in the CPI over the remaining life of each TIPS.
9

DEPOSIT INSURANCE FUND

Purchase up to $15 billion (par value) of Treasury securities with maturity dates 

between September 30, 2018, and June 30, 2023, 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 

$2 billion (par value) of newly purchased securities maturing between July 1, 2021, 

and June 30, 2023.

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

between December 31, 2018, and December 31, 2023, 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 $2 billion (par value) of newly purchased securities maturing between 

January 1, 2022, and December 31, 2023.

NATIONAL LIQUIDATION FUND

Maintain an overnight deposit target floor balance within a range of $100 million to 

$300 million.

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

No strategy changes for the third quarter of 2018.

Strategy Changes for the 3rd Quarter 2018

Investment Strategies

Strategy for the 2nd Quarter 2018

Strategy for the 2nd Quarter 2018

Strategy Changes for the 3rd Quarter 2018
10

Annual YTD YTD % of YTD YTD

Major Expense Category Budget Budget Expenditures Budget Used Variance

FDIC Operating Budget 

Ongoing Operations

Salaries & Compensation $1,227,402 $612,895 $594,671 97% ($18,224)

Outside Services - Personnel 257,909 122,994 108,570 88% (14,424)

Travel 92,781 46,092 43,404 94% (2,688)

Buildings 106,307 48,870 43,845 90% (5,025)

Equipment 113,069 62,778 44,278 71% (18,500)

Outside Services - Other 16,197 8,468 8,129 96% (339)

Other Expenses 13,370 6,295 6,284 100% (11)

Total Ongoing Operations $1,827,035 $908,392 $849,181 93% ($59,211)

Receivership Funding

Salaries & Compensation $19,390 $10,862 $7,876 73% ($2,986)

Outside Services - Personnel 185,600 78,832 74,938 95% (3,894)

Travel 3,574 1,776 998 56% (778)

Buildings 6,968 3,482 2,542 73% (940)

Equipment 969 463 271 59% (192)

Outside Services - Other 1,327 669 507 76% (162)

Other Expenses 7,172 3,582 1,804 50% (1,778)

Total Receivership Funding $225,000 $99,666 $88,936 89% ($10,730)

Office of Inspector General

Salaries & Compensation $34,853 $17,426 $15,998 92% ($1,428)

Outside Services - Personnel 1,660 830 819 99% (11)

Travel 1,583 791 426 54% (365)

Buildings 0 0 0 0

Equipment 1,555 778 88 11% (690)

Outside Services - Other 0 0 0 0

Other Expenses 447 224 77 34% (147)

Total Office of Inspector General $40,098 $20,049 $17,408 87% ($2,641)

Total FDIC Operating Budget $2,092,133 $1,028,107 $955,525 93% ($72,582)

Executive Summary of 2018 Budget and Expenditures

by Budget Component and Major Expense Category

Through June 30, 2018

(Dollars in Thousands)
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1) Executive Support includes the Offices of Minority and Women Inclusion, Communications, Ombudsman, 

Legislative Affairs, and Financial Institution Adjudication. 

2) Executive Offices include the offices of the Chairman, Vice Chairman, Independent Director, Deputy to the 

Chairman and Chief Operating Officer, Deputy to the Chairman and Chief Financial Officer, and Chief Information 

Officer.

Annual YTD YTD % of YTD YTD

Division/Office Budget Budget Expenditures Budget Used Variance

 FDIC Operating Budget 

 Risk Management Supervision $587,399 $291,807 $283,058 97% ($8,749)

 Resolutions & Receiverships 237,492 118,484 110,529 93% (7,955)

 Administration 275,801 131,904 123,280 93% (8,624)

 Legal 200,239 100,531 95,152 95% (5,379)

 Information Technology 245,347 126,851 105,898 83% (20,953)

 Depositor & Consumer Protection 184,268 92,231 87,396 95% (4,835)

 Insurance & Research 51,711 25,748 25,137 98% (611)

 CIO Council 52,118 23,155 20,601 89% (2,554)

 Finance 40,812 20,260 19,851 98% (409)

 Inspector General 40,098 20,049 17,408 87% (2,641)

 Chief Information Security Officer 51,235 25,818 20,521 79% (5,297)

 Executive Support 122,580 10,707 10,089 94% (618)

 Complex Financial Institutions 19,767 9,223 9,053 98% (170)

 Corporate University - Corporate 26,744 16,265 13,481 83% (2,784)

 Corporate University - CEP 19,054 9,336 9,073 97% (263)

 Executive Offices 211,073 5,738 4,998 87% (740)

 Corporate Unassigned 26,395 0 0 0

 Total FDIC Operating Budget $2,092,133 $1,028,107 $955,525 93% ($72,582)

Executive Summary of 2018 Budget and Expenditures

by Division/Office

Through June 30, 2018

(Dollars in Thousands)