1

Federal Deposit Insurance Corporation 

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

 

 November 8, 2007 

MEMORANDUM TO: The Board of Directors 

FROM: Steven O. App 

Deputy to the Chairman and 

 Chief Financial Officer 

Bret D. Edwards 

Director, Division of Finance 

SUBJECT: Third Quarter 2007 CFO Report to the Board 

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

September 30, 2007. 

Executive Summary

 

• The Deposit Insurance Fund (DIF) remained financially sound and exhibited healthy earnings 

during the first three quarters of 2007. The fund balance grew by one percent to $51.754 

billion during the third quarter of 2007. DIF’s comprehensive income grew by $527 million 

during the third quarter of 2007, increasing the year-to-date (YTD) comprehensive income to 

$1.589 billion. Comprehensive income for the third quarter 2007 is primarily composed of 

interest earned on investment securities of $640 million, assessment revenue of $170 million, 

an increase in the unrealized gain on available-for-sale securities (AFS) of $68 million, which 

was offset by $243 million incurred in operating expenses and a $132 million change in the 

provision for insurance losses largely due to the failure of NetBank of Alpharetta, Georgia. 

 

• On September 28, 2007, the Office of Thrift Supervision closed NetBank of Alpharetta, 

Georgia and named the FDIC as receiver. In September, DIF recorded a liability for the 

estimated pending depositor claims and an offsetting receivable from the receivership for the 

estimated subrogated claim (reflecting the estimated insured deposits including brokered 

deposits) of $1.834 billion. In addition, an allowance for loss of $108 million was recorded 

against the resolution receivable. 

• For the nine months ending September 30, 2007, Corporate Operating and Investment Budget 

related expenditures ran below budget by 13 percent and 15 percent, respectively. The variance 

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

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

through the third quarter of 2007. 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. 

 
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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 

• On September 28, 2007, NetBank was closed by the Office of Thrift 

Supervision and the FDIC was named receiver. As of September 30, 

the DIF estimated that the pending insured deposit claim liability would 

total $1.834 billion. Coupled with an initial loss estimate of $108 

million, the projected net receivable from NetBank is $1.726 billion as 

of the end of the third quarter 2007. This net receivable estimate should 

decline as significant liquidation activity occurs during the fourth 

quarter of 2007. 

Of the $2.237 billion in total assets at inception, ING Bank purchased 

$464 million, while the FDIC retained $1.773 billion of assets, mainly 

comprising real estate loans, lease receivables, and a mortgage 

subsidiary. In October 2007, the receivership sold approximately $627 

million in real estate loans and $439 million in lease receivables; this 

brings the remaining NetBank asset book value to $707 million. 

Of the $1.834 billion in estimated insured deposits, ING Bank assumed 

insured deposits of $1.374 billion and FDIC retained $460 million in 

brokered deposits. The DIF expects to complete the funding of the 

insured brokered deposits by November 2007. Given the significant 

proceeds received and anticipated asset sales, FDIC, as receiver for 

NetBank, declared a 50 percent dividend in September 2007. This will 

reduce the DIF’s net receivable from $1.726 billion to approximately 

$800 million during the fourth quarter. Further reductions will be made 

as liquidation proceeds are recovered and dividends paid to claimants 

over the next several months. 

II. Investments • DIF investment portfolio’s amortized cost (book value) increased by 

three percent during the first nine months of 2007, and totaled $50.562 

billion on September 30, 2007. During the period, newly purchased 

securities had slightly higher average yields than those of maturing 

securities. Consequently, the DIF portfolio’s yield increased by three 

basis points during the first nine months of 2007, rising to 4.92 percent 

as of September 30, 2007, from 4.89 percent as of December 31, 2006. 

• Expectations are for Treasury market yields to initially trend lower, 

with the potential to rise from current levels over the course of the 

fourth quarter. Notwithstanding the recent lower trend in such Treasury 

yields, the growing DIF investment portfolio balance should lead to 

increased interest revenue over the long run. 
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Trends and Outlook

Financial Results Comments 

III. Budget • Approximately $717 million was spent in the Ongoing Operations 

component of the 2007 Corporate Operating Budget, which was $55 

million (7 percent) below the budget for the nine months ending 

September 30, 2007. The Outside Services - Personnel expense 

category was $28 million below its year-to-date budget, and represented 

51 percent of the total Ongoing Operations variance. 

• Approximately $6 million was spent in the Receivership Funding 

component of the 2007 Corporate Operating Budget, which was $50 

million (89 percent) below the budget for the nine months ending 

September 30, 2007. The Outside Services - Personnel expense 

category was $42 million below its year-to-date budget, and represented 

84 percent of the total Receivership Funding variance. 

I. Corporate Fund Financial Statement Results (See pages 10 - 11 for detailed data and charts.)

DIF 

• For the nine months ending September 30, 2007, DIF’s comprehensive income totaled $1.589 

billion compared to $1.395 billion for the same period last year, an increase of 14 percent. 

Excluding the recognition of exit fees earned of $345 million (a one-time adjustment), 

comprehensive income rose by $539 million, or 51 percent, from a year ago. This year-overyear increase was primarily due to a $190 million increase in interest revenue, a $382 million 

increase in assessment revenue, a $139 million decrease in the unrealized loss on AFS 

securities, offset by a $27 million increase in operating expenses and a $157 million increase in 

the provision for insurance losses. 

 

• During the third quarter of 2007, DIF’s YTD provision for insurance losses increased by $132 

million to $56 million primarily due to an $83 million increase in the estimated loss for the 

NetBank failure and a $64 million increase in the contingent loss reserve for anticipated 

failures. 

FSLIC Resolution Fund (FRF) 

• FRF reported net income of $39 million for the third quarter of 2007, decreasing the YTD net 

loss to $2 million. Net income for the quarter included: 1) interest on U.S. Treasury obligations 

of $39 million; 2) tax benefit recoveries of $4 million; and 3) an expense of $11 million to fund 

the fiscal year 2008 goodwill expenses of the Department of Justice (which was paid on 

October 1, 2007). 

 

• During the third quarter of 2007, FRF paid $46 million for two Goodwill cases (which were 

accrued for as of June 30, 2007), bringing the total year-to-date litigation expenses to $179 

million. 
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• Subsequent to quarter-end, FRF paid $225 million to the Resolution Funding Corporation 

(REFCORP) on October 10, 2007, bringing total payments to REFCORP to $4.8 billion. The 

most recent prior payment to REFCORP was made on April 10, 2003 for $50 million.

The FDIC must transfer to the REFCORP the net proceeds from the sale of FRF-RTC assets 

(once all liabilities of the FRF-RTC have been provided for) to pay the interest on REFCORP 

bonds, which were issued to fund early Resolution Trust Corporation resolutions. Any such 

payments benefit the U.S. Treasury, which would otherwise be obligated to pay the interest on 

the bonds. 

II. DIF Investment Results (See pages 12 – 13 for detailed data and charts.)

• During the first nine months of 2007, the amortized cost (book value) of the DIF investment 

portfolio increased by $1.704 billion or by three percent—from $48.858 billion on December 

31, 2006, to $50.562 billion on September 30, 2007. Moreover, during the period, the DIF 

portfolio’s market value increased by $2.322 billion or by five percent, from $49.038 billion on 

December 31, 2006, to $51.360 billion on September 30, 2007. 

• The DIF investment portfolio's total return for the first nine months of 2007 was 5.134 percent, 

approximately the same as its benchmark, the Merrill Lynch 1 - 10 Year U.S. Treasury Index 

(Index), which earned 5.139 percent during the same period. 

• During the third quarter of 2007, staff purchased just one conventional Treasury security. This 

newly purchased held-to-maturity (HTM) security had a par value of $400 million, a maturity 

of 12.00 years, a modified duration of 8.22 years, and a yield-to-maturity of 4.87 percent. The 

total cash outlay for this high coupon security was $517 million. On September 30, 2007, the 

DIF portfolio’s overnight investment balance was $2.850 billion, well above its $150 million 

target floor balance. Consistent with the approved third quarter Corporate investment strategy, 

staff deferred purchases of Treasury securities not only in light of comparatively low Treasury 

yields available during much of the quarter, but more importantly, to build up liquidity for the 

anticipated NetBank resolution. (This fairly large bank failure occurred on September 28, 

2007, with significant resolution funding occurring in October 2007.) 

The Treasury Market 

• During the third quarter of 2007, conventional Treasury yields decreased substantially, 

particularly on the short end of the yield curve, reflecting the 50 basis point cut in the federal 

funds target rate that occurred on September 18, 2007, and reflecting market sentiment for 

additional cuts in the target rate during the last quarter of 2007 and the first quarter of 2008. 

During the quarter, yields on three-month and six-month T-Bills decreased by 100 basis points 

and 86 basis points, respectively. The two-year note yield, which is also sensitive to actual as 

well as anticipated changes in the federal funds rate, decreased by 88 basis points, again, 

reflecting the aforementioned 50 basis point cut in the target rate and reflecting expectations for 

additional target rate cuts. Intermediate-maturity Treasury yields also decreased over the 

course of the quarter, although not surprisingly, the yield declines were more modest, as is 

often the case when an expected series of interest rate cuts is initiated. The yield on the fiveyear Treasury note decreased by 68 basis points. The yield on the ten-year Treasury note 

decreased by 43 basis points. It should be noted that most of the decrease in yields occurred 
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between mid-July and the early part of September; towards the latter half of September, yields 

on intermediate- to longer-maturity securities actually started to modestly increase as investors 

unwound some earlier so-called “flight to quality” trades. The conventional Treasury yield 

curve steepened during the third quarter of 2007; on September 30, 2007, the two-year to tenyear yield curve had a 61-basis point positive spread (compared to a modestly positive 16-basis 

point spread at the beginning of the quarter). Nevertheless, the Treasury yield curve still 

remains flatter from a recent historical perspective; over the past five years, this spread has 

averaged 106 basis points. 

• During the third quarter of 2007, most Treasury Inflation-Protected Securities’ (TIPS) real 

yields decreased, reflecting lower actual and anticipated interest rates and concerns over weak 

economic growth. However, the real yield on the DIF portfolio’s shortest-maturity TIPS (with 

a maturity of just over three months at the end of the quarter) increased by 50 basis points 

during the quarter.1

 The real yield on the portfolio’s longest-maturity TIPS (with a maturity of 

a little over four years) decreased by 50 basis points. The real yield on the 10-year TIPS 

maturing on January 15, 2017, decreased by 36 basis points. 

Prospective Strategies 

• The current DIF investment strategy provides for purchasing AFS conventional Treasury 

securities with maturities of six years or less, for purchasing AFS TIPS, and for holding excess 

overnight investments, depending on Treasury market conditions and developments during the 

fourth quarter of 2007. 

• The DIF portfolio’s primary reserve balance is being increased, with a goal of reaching a $15 

billion target floor balance over the near term. Any securities purchased during the fourth 

quarter will be designated AFS. (See attached Approved Investment Strategy.) 

Other Matters 

• Effective September 30, 2007, the FDIC and the U.S. Treasury’s Federal Financing Bank 

(FFB) entered into an agreement to extend the FDIC’s existing $40 billion line of credit with 

the FFB for an additional one-year period through September 30, 2008. 

III. Budget Results (See pages 14 - 15 for detailed data.)

Approved Budget and Staffing Modifications 

All divisions and offices completed a mid-year review of their 2007 operating budgets in July, 

including assessments of YTD spending and projected funding requirements for the remainder of 

the year. Based on that review, the Chief Financial Officer (CFO) approved reallocations among 

the operating budgets of several divisions and offices, in accordance with the authority delegated 

by the Board of Directors in the 2007 Budget Resolution. In addition, funds were realigned 

internally within the operating budgets of several organizations. None of these realignments 

 

1 Very short-maturity TIPS can have dramatic changes in real yields stemming from very near-term inflation expectations. 

Consequently, it is not unusual for very short-maturity TIPS’ real yields, which are quoted on an annual basis, to exhibit dramatic swings 

as they approach maturity.
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changed the total 2007 Corporate Operating Budget, but they did result in changes in the amounts 

budgeted for most major expense categories: 

• At the corporate level, the budgets for the Travel and Other Expense categories were 

increased, the budget for the Buildings category was unchanged, and the budgets for the 

remaining expense categories were decreased. Funding for the approved budget increases 

was made available from excess funding in the Salary and Compensation budgets of the 

Legal Division, the Division of Information Technology (DIT), the Division of Insurance 

and Research (DIR), and the Division of Resolutions and Receiverships (DRR). 

• The Corporate University (CU) budget was increased by over $4.4 million to pay for 

salaries, travel, and other expenses for Corporate Employee Program (CEP) participants 

and detailees from other FDIC organizations. Funding for the salaries and benefits of 

detailees was originally budgeted in their home organizations. Funding had to be 

increased for the CEP because a decision was made in early 2007 to hire more employees 

than originally budgeted in order to fill examiner vacancies in the Division of Supervision 

and Consumer Protection (DSC) more quickly. The funding for this increase was also 

made available from excess funding in the Salary and Compensation budgets of the other 

organizations referenced above. 

• Most of the funds included in the DSC budget for the interagency Shared National Credit 

(SNC) Modernization Project were realigned from the Outside Services-Personnel 

category to the Travel category to cover higher-than-expected travel costs for the 

examination program. These funds were available for reallocation because the start of the 

SNC Modernization Project was postponed until 2008. 

• The budgets for the Outside Services-Personnel and Equipment categories within the 

internal operations portion of DIT’s budget were increased, while the budget for the 

Outside Services-Other category was reduced. Within the systems development, 

operations, and maintenance portion of the DIT budget, the budgets for the Outside 

Services-Personnel and Outside Services-Other categories were increased, while the 

budget for the Equipment category was reduced. The latter changes were made in 

accordance with recommendations from the CIO Council. 

The 2007 spending estimates for several multi-year Investment Budget projects were also updated 

during the third quarter. In addition, the DIT Director in September approved the reallocation of 

funds among several approved IT projects funded from DIT’s 2007 operating budget to reflect 

changes in estimated project costs and schedules, in accordance with recommendations of the CIO 

Council. These reallocations provided funding for the early start of three projects originally 

planned to begin in 2008, but did not change the total amount of the DIT budget. 

The CFO approved two changes in authorized staffing during the third quarter, in accordance with 

authority delegated by the Board: 

• DIT’s authorized year-end 2007 staffing target was increased by two positions to correct 

an error made in the Board case requesting approval of the 2007 budget in December 

2006. As a result of the change, DIT’s year-end 2007 staffing target is now consistent 

with its authorized staffing throughout 2007. There was no impact on DIT’s 2007 

operating budget. 
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• A request from the Office of the Inspector General to transfer one authorized 2007 position 

to CU was approved. There was no impact on CU’s 2007 operating budget. 

Status of Spending for the Implementation of Deposit Insurance Reform 

The 2007 Corporate Operating Budget approved by the Board of Directors in December 2006 

included funding for the continued implementation of Deposit Insurance Reform. Excluding 

internal Salaries and Compensation expenses, $4.9 million was spent for this purpose in 2006 on 

system changes, and $1.8 million was spent on printing and distribution costs. Through the third 

quarter of 2007, an additional $3.9 million (excluding internal salaries and compensation 

expenses) was spent as follows: 

• Approximately $3.4 million was spent for system development and enhancement 

activities. It is anticipated that an additional $1.2 million will be spent in 2007 to complete 

modifications to the Assessment Information Management System (AIMS) and the Risk 

Related Premium System (RRPS). A total of $4.8 million is budgeted in 2007 for systems 

work related to deposit insurance reform implementation. 

• Approximately $525,000 was spent for printing and distribution of updated deposit 

insurance brochures through the third quarter of 2007. It is anticipated that up to an 

additional $100,000 will be spent revising the English versions of Insuring Your Deposit

and Your Insured Deposit during 2007. 

In addition, two new employees were hired in July by DIR to support deposit insurance pricing, as 

authorized by the Board. The additional cost for these employees through September 30, 2007, 

was about $85,000. 

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, 2007, are 

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

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

budget by $2 million and represent more than four percent of the major expense category or total 

division/office budget. 

Significant Spending Variances by Major Expense Category 

Ongoing Operations

There were four major expense categories in which a significant spending variance occurred 

through the third quarter in the Ongoing Operations component of the 2007 Corporate Operating 

Budget: 

• Outside Services-Personnel expenditures were $28 million, or 21 percent, less than 

budgeted. The variance was largely due to lower-than-budgeted payments to the 

Department of Justice for litigation services, delays in starting several IT projects, lower net 

costs for the Student Residence Center (because of increased proceeds derived from outside 
8

use of the facility), and lower-than-budgeted spending on human resource contractual 

services. 

• Travel expenditures were $3 million, or 8 percent, less than budgeted. Overall corporate 

travel costs were lower because staff from DRR participated in fewer compliance 

examinations than projected and Dallas rotations for some CEP participants were 

rescheduled to later in the year. In addition, lower-than-projected travel costs were incurred 

for supervision, field oversight and litigation in the Legal Division. 

• Equipment expenditures were almost $3 million, or 9 percent, less than budgeted. A large 

portion of this variance was because furniture, fixtures, and equipment purchases and 

security equipment and software acquisitions originally budgeted in the first three quarters of 

2007 were rescheduled to the fourth quarter. 

• Other Expenses were $3 million, or 35 percent, less than budgeted. This variance was 

largely due to the lack of spending by employees from their new Professional Learning 

Accounts and the charging of a portion of the expenses for off-site conferences to the Travel 

category rather than the Other Expenses category. 

Receivership Funding

The Receivership Funding component of the Corporate Operating Budget includes budgeted 

funding for overtime and 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 were three major expense categories in which a significant spending variance 

occurred for the first nine months of the year in the Receivership Funding component of the 

Corporate Operating Budget. All of these variances were attributable to the limited receivership 

and resolution activity that occurred during the year. The major expense categories were: 

• Salary and Compensation2 ($2 million, or 86 percent, less than budgeted). 

• Outside Services-Personnel ($42 million, or 91 percent, less than budgeted). 

• Travel ($3 million, or 73 percent, less than budgeted). 

Significant Spending Variances by Division/Office3

There were six organizations that had a significant spending variance through the third quarter: 

• DRR spent $40 million, or 55 percent, less than budgeted. This variance was fully 

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

budget due to the limited receivership and resolution activity that occurred through the 

third quarter. 

 

2

 Overtime is the only account budgeted in the Salary and Compensation expense category of the Receivership Funding 

component of the Corporate Operating Budget in 2007. All staff salaries are budgeted and expensed in the Ongoing 

Operations budget component. 

3

 Information on division/office variances reflects variances in both the Corporate Operating and Investment Budgets. 
9

• The Legal Division spent nearly $14 million, or 21 percent, less than budgeted. This 

variance was largely attributable to under spending in the Receivership Funding 

component of its operating budget, primarily due to the limited receivership and resolution 

activity that occurred through the third quarter. 

• DIT spent $12 million, or 8 percent, less than budgeted. Approximately one-half of the 

variance occurred in the Outside Services-Personnel category of the Ongoing Operations 

component of the Corporate Operating Budget and was caused by delays in systems 

development, operations, and maintenance efforts. In addition, DIT had a larger-thananticipated number of personnel vacancies and filled its vacancies more slowly than 

expected. Security equipment and software purchases were also rescheduled to the fourth 

quarter. 

• The Division of Administration spent nearly $7 million, or 6 percent, less than budgeted. 

This variance was largely attributable to (a) lower-than-anticipated net costs for the 

Student Residence Center as a result of higher-than-projected proceeds received in 

connection with use of the facility by outside parties, and (b) reduced spending for 

compensation and consulting services on human resource matters. 

• DIR spent nearly $3 million, or 10 percent, less than budgeted. This variance was 

attributable to the large number of budgeted positions that remain vacant and a significant 

reduction in the FDIC’s share of the costs for enhancements to the Central Deposit 

Repository under the cost sharing agreement with the other bank regulatory agencies. 

• CU spent $2 million, or 9 percent, less than budgeted. This variance was attributable to 

delays in both the IT training and DRR commission initiatives and the re-scheduling of 

Dallas rotations for some CEP participants to later in the year. 
FDIC CFO REPORT TO THE BOARD – Third Quarter 2007

Fund Financial Results ($ in Millions)

page 10

Balance Sheet

(unaudited) (audited) 

Sep-07 Dec-06

Cash & cash equivalents $ 2,854 $ 2,954 $ (100) (3%) $ 2,312 

Investment in U.S. Treasury obligations, net 47,933 46,142 1,791 4% 46,554 

Assessments receivable, net 173 0 173 0% 0

Interest receivable on investments and other assets, net 706 748 (42) (6%) 707 

Receivables from resolutions, net 2,057 539 1,518 282% 509 

Property, buildings and other capitalized assets, net 357 377 (20) (5%) 367 

Total Assets $ 54,080 $ 50,760 $ 3,320 7% $ 50,449 

Accounts payable and other liabilities 1,942 154 1,788 1161% 253 

Postretirement benefit liability 114 130 (16) (12%) 0 

Contingent Liabilities: future failures 70 111 (41) (37%) 4 

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

Total Liabilities $ 2,326 $ 595 $ 1,731 291% $ 457 

FYI: Unrealized gain on available-for-sale securities, net 221 234 (13) (6%) 254 

FYI: Unrealized postretirement benefit gain/(loss) 22 2 20 1000% 0 

FUND BALANCE $ 51,754 $ 50,165 $ 1,589 3% $ 49,992 

Income Statement 

(unaudited) (audited)

Sep-07 Dec-06

Assessments earned $ 404 $ 32 $ 22 $ 382 

Interest earned on investment securities 1,955 2,241 1,765 190 

Exit fees earned 0 345 345 (345)

Other revenue 11 27 22 (11)

Total Revenue $ 2,370 $ 2,645 $ 2,154 $ 216 

Operating expenses (includes depreciation expense) 730 951 703 27 

Provision for insurance losses 56 (52) (101) 157 

Other expenses 2 6 5 (3)

Total Expenses & Losses $ 788 $ 905 $ 607 $ 181 

Net Income $ 1,582 $ 1,740 $ 1,547 $ 35 

Unrealized gain/(loss) on available-for-sale securities, net (13) (173) (152) 139 

Unrealized postretirement benefit gain/(loss) 20 2 0 20 

YTD Comprehensive Income $ 1,589 $ 1,569 $ 1,395 $ 194 

Deposit Insurance Fund

Deposit Insurance Fund

(unaudited)

Change Sep-06

Sep-06

(unaudited)

% Change

Year-OverYear Change

By the 4th quarter 2008 assessment period, assessment credits used are projected to decline by eighty 

percent resulting in an increase in quarterly net assessment revenue of approximately 400 percent.

$441

$279

$156

$857

$1,013 $936 $965 $977 $989 $1,001

$763

$717

$563 $548

$173 $248

$414

$722

$0

$200

$400

$600

$800

$1,000

$1,200

3rd Qtr 2007 4th Qtr 2007 1st Qtr 2008 2nd Qtr 2008 3rd Qtr 2008 4th Qtr 2008

$ in Millions

Gross Assessment Revenue Credits Used Net Assessment Revenue

(159)

(153)

(154)

94

(171)

(5)

105

(40)

(4)

(28) 4 3

(353)

(160)

(52)

56

-$400

-$300

-$200

-$100

$0

$100

$200

2004 2005 2006 9/2007

$ in Milions

Closed Banks Anticipated Failures Other Total Provision for Losses

Components of Provision for Insurance Losses

Over the last seven years, the 

provision for insurance losses 

added to net income as 

estimated losses that had been 

previously booked for both 

existing receiverships and 

potential failures were 

reversed. By the end of the 

third quarter of 2007, this trend 

had begun to reverse.
page 11

Fund Financial Results - continued ($ in Millions )

$20.8 $19.2

$18.9 $18.6

Statements of Cash Flows 

(unaudited) (audited)

Sep-07 Dec-06

Net Income $ 1,582 $ 1,740 $ 1,547 $ 35

Amortization of U.S. Treasury obligations (unrestricted) 431 599 454 (23)

TIPS Inflation Adjustment (286) (109) (178) (108)

Depreciation on property and equipment 40 52 39 1 

Provision for insurance losses 56 (52) (101) 157 

Exit fees earned 0 (345) (345) 345 

Unrealized gain on postretirement benefits 20 0 0 20 

Net change in operating assets and liabilities 5 100 104 (99)

Net Cash Provided by Operating Activities $ 1,848 $ 1,985 $ 1,520 $ 328

Investments matured and sold 6,256 6,800 3,480 2,776 

Investments purchased (includes purchase of property and 

equipment) (8,204) (9,062) (5,919) (2,285)

Net Cash (Used) by Investing Activities $ (1,948) $ (2,262) $ (2,439) $ 491

Net Increase (Decrease) in Cash and Cash Equivalents (100) (277) (919) 819 

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

Cash and Cash Equivalents - Ending $ 2,854 $ 2,954 $ 2,312 $ 542

(unaudited) (audited)

Sep-07 Dec-06

Cash and cash equivalents $ 3,764 $ 3,616 $ 3,565 $ 199

Accumulated deficit, net (123,836) (123,834) (123,625) (211)

Resolution equity 3,790 3,620 3,577 213 

Total revenue $ 150 $ 169 $ 124 $ 26

Operating expenses 2 12 12 (10)

Goodwill/Guarini litigation expenses 179 411 158 21 

Net (loss/income) $ (2) $ (203) $ 6 $ (8)

# of Cases # of 

Cases

Dismissals/

Time 43 0

Settlements 18 3

Judgments 41 5

Pending 20 0

Totals 122 8

$149 

$1,221*

N/A

$1,370 

$121 

$153 

N/A

$274 

Sep-06

(unaudited)

Amount Paid/ 

Accrued

Year-OverYear Change

Year-OverYear Change

* Four institutions account for 66% 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

N/A

Guarini

Summary of Goodwill & Guarini Litigation 

(Inception-to-Date)

FSLIC Resolution Fund 

Sep-06

(unaudited)

Amount Paid

N/A

$ in Millions

FRF Quarterly Payments for Goodwill & Guarini Case 

Settlements & Judgments

$285

$16

$179

$234

$9 $0

$46

$0

$74

$0

$169

$0

$23

$6

$49

$0 $0

$28

$0

$50

$100

$150

$200

$250

$300

3Q

2005

4Q

2005

1Q

2006

2Q

2006

3Q

2006

4Q

2006

1Q

2007

2Q

2007

3Q

2007

$ in Millions

Goodwill Cases Guarini Cases

DIF Coverage Ratio

(Interest & Assessment Revenue /Operating Expenses)

3.23

2.39

2.49

2.31 2.35

0

1

2

3

4

5

2003 2004 2005 2006 9/2007

The coverage ratio has 

increased substantially (35%) 

during 2007 as the growth of 

net assessment revenue 

accelerated.
page 12

9/30/07 12/31/06 Change

Par Value $47,515 $46,483 $1,032

Amortized Cost $50,562 $48,858 $1,704

Market Value $51,360 $49,038 $2,322

Primary Reserve 1 $12,770 $13,911 ($1,141)

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

Primary Reserve % of Total Portfolio 24.5% 28.0% (3.5%)

Year-to-Date Total Return (Portfolio) 5.134% 4.056% not applicable

Year-to-Date Total Return (Benchmark) 2 5.139% 3.571% not applicable

Total Return Variance (in basis points) (0.5%) 48.5 not applicable

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

Weighted Average Maturity (in years) 4.26 3.57 0.69

Effective Duration (in years) 4

 Total Portfolio 3.30 2.82 0.48

 Available-for-Sale Securities 1.35 1.80 (0.45%)

 Held-to-Maturity Securities 4.00 3.29 0.71

9/30/07 12/31/06 Change

Book Value 5 $180 $381 ($201) 

Yield-to-Maturity 5.01% 5.37% (0.36%)

Weighted Average Maturity (in days) 25 13 12

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, an estimated 80% "yield beta" factor is applied to its real yield duration to arrive at an estimated effective 

duration.

National Liquidation Fund (NLF) Investment Portfolio Summary

($ 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

 9/30/07

Conventional 12/31/06

TIPS

12/31/06

9/30/07
page 13

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 $9.5 billion (par value) by quarter end; and

All newly purchased AFS conventional 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.

TIPS target limit is eliminated. 

Primary reserve balance is being increased, with a goal of reaching a $15 billion target floor balance over the near term.

NATIONAL LIQUIDATION FUND

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

Approved Investment Strategy

Current Strategy as of 3rd Quarter 2007

Strategy Changes for 4th Quarter 2007

Current Strategy as of 3rd Quarter 2007

DEPOSIT INSURANCE FUND

Strategy Changes for 4th Quarter 2007

AFS securities target limit is eliminated; all securities purchased during the quarter will be designated AFS. 
page 14

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 $489,377 $474,363 97% ($15,014)

Outside Services - Personnel 135,907 107,692 79% (28,215)

Travel 41,429 38,048 92% (3,381)

Buildings 50,422 49,435 98% (987)

Equipment 33,098 30,162 91% (2,936)

Outside Services - Other 12,409 11,347 91% (1,062)

Other Expenses 8,869 5,777 65% (3,092)

Total Ongoing Operations $771,511 $716,824 93% ($54,687)

Receivership Funding

Salaries & Compensation $2,565 $347 14% ($2,218)

Outside Services - Personnel 46,010 4,073 9% (41,937)

Travel 4,234 1,160 27% (3,074)

Buildings 1,725 600 35% (1,125)

Equipment 170 15 9% (155)

Outside Services - Other 407 73 18% (334)

Other Expenses 1,139 38 3% (1,101)

Total Receivership Funding $56,250 $6,306 11% ($49,944)

Total Corporate Operating Budget $827,761 $723,130 87% ($104,631)

Investment Budget 1 $10,437 $8,911 85% ($1,526)

Grand Total $838,198 $732,041 87% ($106,157)

(Dollars in Thousands)

Executive Summary of 2007 Budget and Expenditures

by Major Expense Category

Through September 30, 2007
page 15

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 $294,545 $284,530 97% ($10,015)

 Information Technology 138,163 128,120 93% (10,043)

 Administration 117,446 110,295 94% (7,151)

 Resolutions & Receiverships 73,822 33,338 45% (40,484)

 Legal 68,631 54,188 79% (14,443)

 Insurance & Research 27,918 25,180 90% (2,738)

 Finance 22,871 21,613 94% (1,258)

 Inspector General 18,761 17,378 93% (1,383)

 Corporate University 21,621 19,665 91% (1,956)

 Executive Support 1 13,163 11,821 90% (1,342)

 Executive Offices 2 5,820 5,208 89% (612)

 Government Litigation 25,000 11,794 47% (13,206)

 Total, Corporate Operating Budget $827,761 $723,130 87% ($104,631)

 Investment Budget 3

 Information Technology $9,994 $8,427 84% ($1,567)

 Resolutions & Receiverships 180 273 152% 93

 Insurance & Research 203 211 104% 8

 Corporate University 60 0 0% (60)

 Total, Investment Budget 3 $10,437 $8,911 85% ($1,526)

 Combined Division/Office Budgets

 Supervision & Consumer Protection $294,545 $284,530 97% ($10,015)

 Information Technology 148,157 136,547 92% (11,610)

 Administration 117,446 110,295 94% (7,151)

 Resolutions & Receiverships 74,002 33,611 45% (40,391)

 Legal 68,631 54,188 79% (14,443)

 Insurance & Research 28,121 25,391 90% (2,730)

 Finance 22,871 21,613 94% (1,258)

 Inspector General 18,761 17,378 93% (1,383)

 Corporate University 21,681 19,665 91% (2,016)

 Executive Support 1 13,163 11,821 90% (1,342)

 Executive Offices 2 5,820 5,208 89% (612)

 Government Litigation 25,000 11,794 47% (13,206)

 Grand Total $838,198 $732,041 87% ($106,157)

(Dollars in Thousands)

Executive Summary of 2007 Budget and Expenditures

by Budget Component and Division/Office

Through September 30, 2007