Federal Deposit Insurance Corporation 

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

 

 April 25, 2008 

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: First Quarter 2008 CFO Report to the Board 

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

March 31, 2008. 

Executive Summary

 

• The Deposit Insurance Fund (DIF) balance grew by one percent ($430 million) to $52.843 

billion during the first quarter of 2008, a decrease of 26 percent compared to a year ago. 

Although two banks failed during the quarter, their resolution had a nominal effect on the DIF’s 

comprehensive income. 

 

• On January 25, 2008, the Office of the Comptroller of the Currency closed Douglass National 

Bank of Kansas City, Missouri, and named the FDIC as receiver. Liberty Bank and Trust of 

New Orleans, Louisiana, assumed all of the deposits and purchased most of the assets of the 

failed bank. DIF recorded a $50 million receivable from the receivership for the payments 

made by DIF to cover obligations to insured depositors. In addition, an allowance for loss of 

$6 million was recorded against the resolution receivable. 

On March 7, 2008, the Commissioner of Missouri’s Division of Finance closed Hume Bank of 

Hume, Missouri, and named the FDIC as receiver. Security Bank of Rich Hill, Missouri, 

assumed the failed bank’s insured deposits and purchased approximately $3 million in assets. 

The FDIC recorded a $14 million receivable from the receivership for the payments made by 

DIF to cover obligations to insured depositors. In addition, DIF recorded an allowance for loss 

of $3 million against the resolution receivable. 

• For the three months ending March 31, 2008, Corporate Operating and Investment Budget 

related expenditures ran below budget by 12 percent and 16 percent, respectively. The variance 

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

spending for contractual services in both the Ongoing Operations and Receivership Funding 

components of the budget during the quarter. Detailed quarterly reports are provided separately 

to the Board by the Capital Investment Review Committee for those information technology 

projects that are included in the Investment Budget. 
2

The following is an assessment of each of the three major finance areas: financial statements, 

investments, and budget. 

Trends and Outlook

Financial Results Comments 

I. Financial 

Statements 

• The DIF fund balance is projected to increase by $2.8 billion, from 

$52.4 billion at year-end 2007 to $55.2 billion by year-end 2008. 

Assuming assessable and insured deposit growth of four percent, the 

reserve ratio is projected to reach the 1.25 percent designated reserve 

ratio early in 2009. The main component of the fund balance increase is 

net assessment revenue, which reaches $2.7 billion in 2008 as the 

available assessment credits continue to be depleted. Also contributing 

to the increase is investment income exceeding operating expenses by 

$1.2 billion in 2008. Provision for insurance losses (including losses 

from failures) reduces the increase in comprehensive income and is 

projected to rise in 2008 to $1.1 billion. 

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

by 1.49 percent during the first quarter of 2008, and totaled $51.219 

billion on March 31, 2008. At quarter end, the DIF’s portfolio yield 

was 4.45 percent, down about 27 basis points from its December 31, 

2007, yield of 4.72 percent. A large factor behind this decline was that 

securities totaling $3.040 billion with a high weighted average yield of 

5.77 percent matured during the first quarter. During the quarter, staff 

deferred purchases of conventional Treasury securities in light of 

depressed Treasury yields. All available funds were invested in 

overnight investments. At quarter end, overnight investments totaled 

$8.079 billion, or about 14.8 percent of the total portfolio as measured 

by market value. During the quarter, overnight investments averaged 

about 2.65 percent on a bond equivalent basis. However, on March 31, 

2008, overnight investments had a bond equivalent yield of 1.45 

percent. Thus, the DIF portfolio’s average yield at quarter-end reflected 

a large amount of previously high yielding Treasury securities now 

being invested in lower yielding overnight investments. 

• Treasury market yields declined dramatically during the first quarter of 

2008, reflecting concerns over the U.S. economy possibly heading into 

recession and reflecting the substantial cuts in the federal funds target 

rate; the rate was cut three times during the quarter, for a total decline of 

200 basis points, from 4.25 percent to 2.25 percent. Treasuries also 

rallied in response to “flight to quality” trades by investors seeking the 

safety of Treasuries in the face of financial market turmoil. During the 

second quarter of 2008, Treasuries are expected to trade generally 

within the range exhibited during the last few weeks of the first quarter, 

as many investors are expecting further reductions in the federal funds 

target rate and are concerned the U.S. economy may already be in a 

recession. 
3

Trends and Outlook

Financial Results Comments 

• At the end of the first quarter of 2008, the DIF portfolio’s available-forsale (AFS) securities had unrealized gains of $485.9 million. Market 

consensus expectations are for Treasury yields to gradually rise over the 

second half of 2008, which would likely reduce these unrealized gains. 

However, regardless of changes in yields, existing net unrealized gains 

will be reduced due to the passage of time (that is, any unrealized gains 

or losses vanish as AFS securities approach their maturity dates). 

III. Budget • Approximately $235 million was spent in the Ongoing Operations 

component of the 2008 Corporate Operating Budget, which was $23 

million (9 percent) below the budget for the three months ending March 

31, 2008. The Outside Services - Personnel expense category was 

approximately $10 million below its year-to-date budget, and the 

Salaries and Compensation category was almost $8 million below its 

year-to-date budget. Together, these two categories represented 78 

percent of the total Ongoing Operations variance. 

• Approximately $9.4 million was spent in the Receivership Funding 

component of the 2008 Corporate Operating Budget, which was $9.3 

million (50 percent) below the budget for the three months ending 

March 31, 2008. The Outside Services - Personnel expense category 

was $9.1 million below its year-to-date budget, and represented 97 

percent of the total Receivership Funding variance. The variance was 

primarily due to the limited receivership and resolution activity during 

the quarter. 

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

Deposit Insurance Fund (DIF) 

• For the three months ending March 31, 2008, DIF’s comprehensive income totaled $430 

million compared to $580 million for the same period last year, a decrease of $150 million or 

26 percent. This year-over-year decrease was primarily due to a $598 million increase in the 

provision for insurance losses, which was offset in part by a: 1) $354 million increase in 

assessment revenue; 2) $51 million increase in interest revenue from UST obligations; and 3) 

$46 million increase in the unrealized gain on available-for-sale securities. 

• DIF recorded a $442 million receivable for estimated net assessments due from insured 

institutions for first quarter 2008 insurance coverage. The receivable was the result of netting 

approximately $563 million in credits against approximately $1.005 billion in gross assessment 

revenue. During the month of March, DIF also collected $251 million in cash assessment 

payments for fourth quarter 2007 insurance coverage, exceeding the estimated receivable by 

approximately $6 million. 
4

• The provision for losses for the first quarter of 2008 was $525 million, consisting primarily of a 

$458 million increase to the estimated losses for future failures and a $67 million upward 

adjustment to the estimated losses for prior year failures (including $42 million for the NetBank 

receivership and $16 million for the Miami Valley Bank receivership, both of which failed 

during 2007). 

FSLIC Resolution Fund (FRF)

 

• For the first quarter of 2008, FRF reported a net loss of $55 million. This loss was primarily 

related to Goodwill litigation expenses/losses that were partially offset by interest earned on 

U.S. Treasury obligations. 

• In addition to the aforementioned Goodwill litigation expenses/losses, FRF paid Goodwill 

judgments for two cases in the aggregate amount of $35.4 million that were accrued for in the 

prior year. 

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

• The amortized cost (book value) of the DIF investment portfolio increased by $750 million or 

by 1.5 percent—from $50.469 billion on December 31, 2007, to $51.219 billion on March 31, 

2008. Moreover, reflecting the Treasury rally during the period, the DIF portfolio’s market 

value increased by $2.113 billion or by 4.0 percent, from $52.378 billion on December 31, 

2007, to $54.491 billion on March 31, 2008. 

• The DIF investment portfolio's total return for the first quarter of 2008 was 3.734 percent, 

approximately 72 basis points less than its benchmark, the Merrill Lynch 1 - 10 Year U.S. 

Treasury Index (Index), which had a total return of 4.455 percent during the same period. 

Given the significant rise in Treasury security prices during the quarter, the DIF portfolio’s 

large cash balance acted as a drag on total return performance. 

• During the first quarter of 2008, consistent with the approved quarterly Corporate investment 

strategy, staff deferred purchases of Treasury securities in light of the comparatively low 

Treasury yields available during the quarter. On March 31, 2008, the DIF portfolio’s overnight 

investment balance was $8.079 billion, well above its $150 million target floor balance. 

The Treasury Market 

• During the first quarter of 2008, conventional Treasury yields decreased substantially, 

reflecting three cuts in federal funds target rate during the quarter totaling 200 basis points, and 

reflecting market sentiment for additional cuts in the target rate during next couple of quarters. 

In addition, Treasuries also rallied in response to “flight to quality” trades by investors seeking 

the relative safety of Treasury securities. In the first quarter, yields on three-month and sixmonth T-Bills decreased by 192 basis points and 191 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 147 basis points, again, reflecting the aforementioned cuts in the federal 

funds target rate and reflecting expectations for additional rate cuts. Intermediate-maturity 

Treasury yields also decreased dramatically over the course of the quarter. The yield on the 

five-year Treasury note decreased by 100 basis points; the yield on the ten-year Treasury note 
5

decreased by 61 basis points. The conventional Treasury yield curve steepened during the first 

quarter of 2008; on March 31, 2008, the two-year to ten-year yield curve had a 183-basis point 

positive spread (compared to positive 97-basis point spread at the beginning of the quarter). 

Over the past five years, this spread has averaged 96 basis points. 

• During the first quarter of 2008, Treasury Inflation-Protected Securities’ (TIPS) real yields 

decreased dramatically, reflecting lower actual and anticipated interest rates and concerns over 

weak economic growth. The magnitude of the declines was in line with the yield declines of 

comparable maturity conventional Treasury yields. The real yield of the DIF portfolio’s shortmaturity TIPS (with a maturity of little under one-year at the end of the quarter) decreased by 

169 basis points during the quarter. The real yield on the portfolio’s longest-maturity TIPS 

(with a maturity of just under four years) decreased by 100 basis points. The real yield on the 

10-year TIPS maturing on January 15, 2017, decreased by 65 basis points. 

Prospective Strategies 

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

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

and developments during the second quarter of 2008. In line with consensus expectations, 

Treasury yields should continue to trade generally within their current range, with the potential 

for a modest rise from quarter-end levels. During the second quarter of 2008, if appropriate, 

staff may take advantage of rising yields by purchasing short- to intermediate-maturity 

conventional Treasury securities and TIPS. 

• As part of the DIF portfolio’s approved first quarter 2008 investment strategy, an objective was 

established to reach a $15 billion primary reserve target floor balance, which was achieved; at 

quarter-end, the DIF portfolio’s primary reserve stood at $17.208 billion. The DIF portfolio’s 

second quarter 2008 investment strategy maintains the strategic objective of increasing the 

primary reserve, with newly purchased Treasury securities being designated AFS. 

• 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 

second quarter of 2008. Any securities purchased during the quarter will be designated AFS. 

As with recent quarterly investment strategies, conventional AFS securities will be limited to 

maturities of six years or less, as a means to help control fund balance volatility. (See attached 

Approved Investment Strategy.) 

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

Approved Budget and Staffing Modifications 

Three modifications were made to the 2008 Corporate Operating Budget and/or authorized 

staffing, in accordance with the authority delegated by the Board of Directors in the 2008 

Budget Resolution: 

• In January 2008, several divisions and offices reallocated budget authority among major 

expense categories, largely to facilitate 2008 budget execution. These reallocations did not 
6

change the total 2008 Corporate Operating Budget or the budgets of individual divisions or 

offices as approved by the Board of Directors in December 2007. The largest reallocation 

was made by the Division of Information Technology (DIT), which reallocated over $4 

million from the Equipment category to other categories within its budget. This change 

was prompted by a late 2007 budget reallocation that made funds available to purchase 

equipment in 2007 rather than 2008. The total of these adjustments increased Outside 

Services – Personnel by $4,142,239, Travel by $573,736, and Buildings by $212,000. 

This was offset by decreasing Equipment by $4,073,852, Other Expenses by $770,766, and 

Outside Services – Other by $83,357. 

• In February 2008, the Deputy to the Chairman and Chief Financial Officer (CFO) 

approved a budget adjustment that affected all divisions and offices, except for the Office 

of Inspector General, to implement changes to the pilot Professional Learning Accounts 

(PLA) program approved by the Corporate University Governing Board in early 2008. 

There was no net change in the total Board-approved budget, but funds were shifted 

among divisions and offices and major expense categories. The Division of Supervision 

and Consumer Protection and the Corporate University had the largest net budget increases 

($215,377 and $104,011, respectively). The Division of Information Technology and the 

Division of Administration had the largest net budget reductions ($166,465 and $90,103, 

respectively). 

• In April 2008, the CFO approved an increase in authorized staffing for the Division of 

Resolution and Receiverships (DRR) from 223 to 331. This increase included 39 new 

permanent positions and 69 non-permanent positions (for up to two years, with possible 

extensions based upon workload). In addition, the Chairman authorized DRR to increase 

its planned temporary over-hiring from 19 to 30.1

 The increase in permanent staff was 

based on a reassessment of the appropriate size of the staffing platform needed to maintain 

readiness and fulfill DRR’s ongoing mission in light of current conditions. The temporary 

staffing increase was approved based on the potential increase in the number of institution 

failures. This was a proactive measure to address possible workload that might not fully 

materialize, but was deemed necessary to handle an increase in pre-failure workload and to 

ensure that we are prepared to handle any failures that occur. DRR plans to reallocate 

approximately $5.4 million from the Outside Services-Personnel category to the Salaries 

and Compensation category in its Receivership Funding budget to cover the cost of the 

non-permanent staff to be hired. Funds will be reallocated at the corporate level to DRR’s 

Ongoing Operations budget to provide funding for the additional permanent staff to be 

hired. No increase is expected to be necessary in the total 2008 Corporate Operating 

Budget. 

 

The 2008 Investment Budget spending projection for the 4C project (formerly the Asset 

Servicing Technology Enhancement Project) was increased by $747,114 following the release 

of $775,000 in contingency funds by the Capital Investment Review Committee (CIRC) in 

March. 

 

1

 In December 2007, the Board of Directors, in conjunction with its approval of the 2008 Corporate Operating Budget, 

authorized DRR to exceed its authorized staffing level on a temporary basis. This “temporary overhire” authority was 

intended to facilitate orderly succession management within DRR in light of an unusually large number of projected 

retirements doing the ensuing five years. Based on the Corporation’s retirement projections, DRR staffing is expected to 

return to authorized levels by year-end 2010. 
7

Spending Variances 

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

below. Significant spending variances for the three months ending March 31, 2008, are 

defined as those that either (1) exceed the YTD budget by $3 million and represent more than 

five percent for 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 $5 

million and represents more than ten percent of the major expense category or total 

division/office budget. 

Significant Spending Variances by Major Expense Category 

Ongoing Operations

There was only one major expense category that incurred a significant spending variance 

during the first quarter in the Ongoing Operations component of the 2008 Corporate Operating 

Budget: 

• Outside Services-Personnel expenditures were $10 million, or 24 percent, less than 

budgeted. The variance was largely due to the fact that DIT budgeted funds in the first 

quarter for some projects which will now begin later in the year and/or require less funding 

than budgeted. The excess funds are expected to be reallocated to other projects that 

require additional funds during the second and third quarters. The Chief Information 

Officer Council (CIO) has approved the realignment of schedules and revised spending 

plans for these projects. Those adjustments will be considered during the mid-year budget 

review process. The variance was also due to lower net costs for the Student Residence 

Center (because of increased proceeds derived from use of the facility from outside 

parties) and lower-than-budgeted spending for contractual services in three areas: human 

resources, nationwide administrative services, and personnel security. 

Receivership Funding

The Receivership Funding component of the Corporate Operating Budget includes budgeted 

funding for non-personnel expenses that are incurred in conjunction with institution failures 

and the management and disposition of the assets and liabilities of the ensuing receiverships. 

Receivership Funding also includes all salary and compensation costs of employees hired on a 

non-permanent basis for actual or anticipated increases in receivership and resolution activities. 

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

during the first quarter in the Receivership Funding component of the 2008 Corporate 

Operating Budget: 

• Outside Services-Personnel expenditures were $9 million, or 59 percent, less than 

budgeted, primarily due to the limited receivership and resolution activity that occurred 

during the quarter. 
8

Significant Spending Variances by Division/Office2

Three organizations had significant spending variances through the end of the first quarter: 

• The Division of Information Technology (DIT) spent $10 million, or 17 percent, less than 

budgeted. DIT spent $8.8 million less than budgeted in the ongoing operations component 

of its budget, largely due to lower contractual spending for application development, 

operations, and maintenance activities. Adjustments to application development project 

schedules and budgets have been approved by the CIO Council and will be considered 

during the mid-year budget review process. DIT also deferred equipment spending 

initially budgeted in the first quarter to later in the year and spent $1.0 million less than 

estimated during the first quarter for approved Investment Budget projects that are 

monitored and reported to the Board separately by the CIRC. 

• DRR spent $5 million, or 22 percent, less than budgeted. This variance was fully 

attributable to under spending in the Receivership Funding component of its operating 

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

quarter. 

• The Legal Division spent $5 million, or 22 percent, less than budgeted. Approximately 

$3.8 million of this variance was due to under spending in the Receivership Funding 

component of the division’s operating budget due to the limited receivership and 

resolution activity that occurred during the quarter. Spending in the Ongoing Operations 

budget component was nearly $1.5 million below budget for the quarter because hiring did 

not occur as quickly as anticipated and retirements in late 2007 exceeded projections. 

Other Matters 

The 2008 Budget Resolution approved by the Board on December 19, 2007, delegated to 

the Chief Financial Officer the authority to “make necessary administrative adjustments to 

the salaries and compensation expense category of the 2008 Corporate Operating Budget” 

for certain factors not determined at the time of the budget adoption. In accordance with 

that delegation of authority, we have completed an analysis of projected 2008 salary and 

fringe benefit expenses, based on actual expenses through March 31, 2008. Locality pay, 

annual pay adjustments and lump sum/bonus payments were effective in February and first 

reflected in the March accounting records. 

Our analysis indicates that 2008 salaries and fringe benefit costs were over-estimated by 

approximately $1.6 million (0.2% of the Salaries and Compensation expense category) in 

the formulation of the 2008 Corporate Operating Budget. This was largely offset, however, 

by an increase in the 2008 pay adjustment for FDIC employees – on January 10, 2008, 

Chairman Bair and the President of NTEU jointly announced an interim change to the Pay 

For Performance (PFP) program that will cost approximately $1.5 million in 2008. 

Accordingly, we have determined that no adjustment should be made to the Salaries and 

Compensation category of the 2008 Corporate Operating Budget that was previously 

approved by the Board of Directors. 

 

2

 Information on division/office variances reflects variances in both the Corporate Operating and Investment Budgets. 
FDIC CFO REPORT TO THE BOARD – First Quarter 2008

Fund Financial Results ($ in Millions)

page 9

Balance Sheet

(unaudited) (audited) (unaudited)

Mar-08 Dec-07

Cash & cash equivalents $ 8,080 $ 4,245 $ 3,835 $ 3,712 $ 4,368 

Investment in U.S. Treasury obligations, net 43,626 46,588 (2,962) 45,942 (2,316)

Assessments receivable, net 442 244 198 94 348 

Interest receivable on investments and other assets, net 623 768 (145) 682 (59)

Receivables from resolutions, net 751 808 (57) 431 320 

Property, buildings and other capitalized assets, net 347 352 (5) 368 (21)

Total Assets $ 53,869 $ 53,005 $ 864 $ 51,229 $ 2,640 

Accounts payable and other liabilities 127 152 (25) 119 8 

Postretirement benefit liability 116 116 0 130 (14)

Contingent Liabilities: future failures 583 124 459 35 548 

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

Total Liabilities $ 1,026 $ 592 $ 434 $ 484 $ 542 

FYI: Unrealized gain on available-for-sale securities, net 486 359 127 315 171 

FYI: Unrealized postretirement benefit gain 19 19 0 2 17 

FUND BALANCE $ 52,843 $ 52,413 $ 430 $ 50,745 $ 2,098 

Income Statement 

(unaudited) (audited) Year-OverMar-08 Dec-07

Assessments earned $ 448 $ 643 $ 94 $ 354 

Interest earned on investment securities 618 2,540 567 51 

Other revenue 1 14 4 (3)

Total Revenue $ 1,067 $ 3,197 $ 665 $ 402 

Operating expenses (includes depreciation expense) 238 993 239 (1)

Provision for insurance losses 525 95 (73) 598 

Other expenses 1 3 0 1 

Total Expenses & Losses $ 764 $ 1,091 $ 166 $ 598 

Net Income $ 303 $ 2,106 $ 499 $ (196)

Unrealized gain/(loss) on available-for-sale securities, net 127 125 81 46 

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

YTD Comprehensive Income $ 430 $ 2,248 $ 580 $ (150)

Mar-07

(unaudited)

Mar-07 Change

Deposit Insurance Fund

Deposit Insurance Fund

Year-Over-Year

Change

Year Change

The estimated losses for 

anticipated failures as of March 

31, 2008 reached its highest mark 

in five years. Total losses from 

anticipated failures by the end of 

2008 and 2009 are expected to 

be higher than the average over 

the past ten years.

4,525

9,143

5,021

3,409 3,214

1,706

2,050

1,482

1,271 1,158

921 830 641 438

2,775

1,490 2,100 2,395 1,950 1,550

2,790

83 263 1,034

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

$ in Millions

DIF Coupon Payments

DIF Portfolio Maturities (par value)

Approximately 46% of DIF's investments in U.S. Treasury obligations other than overnights will mature 

by 2010. For the near-term, yields on newly purchased U.S. Treasury securities are expected to be 

generally lower than the yields on maturing securities.

67

458

81

(154) (159) (153)

14

105

(5)

(171)

4 (28) 0

(4)

0

95

(52)

(160)

(353)

525

-$400

-$300

-$200

-$100

$0

$100

$200

$300

$400

$500

$600

2004 2005 2006 2007 3/2008

$ in Milions

Closed Banks Anticipated Failures Other Total Provision for Losses

Components of Provision for Insurance Losses
page 10

Fund Financial Results - continued ($ in Millions )

$20.8

FRF Residual Activity

Asset Disposition

>139 receivership assets with net book value of $3.5 million.

>43 corporate purchased assets with net book value of $28.7 million. 

>395 off-book assets (criminal restitution & professional liability 

claims) for a total of $774 million.

Goodwill Litigation & Tax Benefits

>19 Goodwill cases remain. Estimated completion by 2010.

>4 Tax benefit cases remain. 2 expected to terminate in 2008, 1 in 

2012, 1 in 2013.

>Partnerships - All Equity and Asset Management Disposition 

Agreement partnerships will terminate in 2008.

>40 FRF professional liability matters remain. 

Restitution Orders, Professional Liability Claims, 

& Other Legal Issues

Program Responsibilities

>368 FRF criminal restitution orders and 3 FRF forfeiture matters 

remain. 

>15 "other" FRF legal matters remain.

>Affordable Housing - monitoring for 25+ years w/750+ properties.

>Environmental - Leaking Underground Storage Tank reimbursement 

applications totaled $314 thousand. Approximately $177 thousand 

received in 2007 with remainder to be received in 2008.

>Subsidiaries - 2 remain with termination anticipated in 2008.

>Receiverships - 11 remain with 10 due to terminate in 2008 and 1 in 

2009.

Statements of Cash Flows 

(unaudited) (audited)

Mar-08 Dec-07

Net Income $ 303 $ 2,106 $ 499 $ (196)

Amortization of U.S. Treasury obligations (unrestricted) 129 571 136 (7)

TIPS Inflation Adjustment (80) (314) (25) (55)

Depreciation on property and equipment 13 63 13 0 

Provision for insurance losses 525 95 (73) 598 

Unrealized gain on postretirement benefits 0 17 0 0 

Net change in operating assets and liabilities (94) (668) 37 (131)

Net Cash Provided by Operating Activities $ 796 $ 1,870 $ 587 $ 209 

Investments matured and sold 3,039 7,626 1,515 1,524 

Investments purchased (includes purchase of property and 

equipment) 0 (8,205) (1,344) 1,344 

Net Cash Provided by/(Used by) Investing Activities $ 3,039 $ (579) $ 171 $ 2,868 

Net Increase (Decrease) in Cash and Cash Equivalents 3,835 1,291 758 3,077 

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

Cash and Cash Equivalents - Ending $ 8,080 $ 4,245 $ 3,712 $ 4,368 

(unaudited) (audited) (unaudited)

Mar-08 Dec-07

Cash and cash equivalents $ 3,415 $ 3,617 $ (202) $ 3,675 $ (260)

Accumulated deficit, net (123,825) (123,770) (55) (123,853) 28 

Resolution equity 3,444 3,648 (204) 3,708 (264)

Total revenue $ 23 $ 188 $ (165) $ 64 $ (41)

Operating expenses 1 3 (2) 0 1 

Goodwill/Guarini litigation expenses 77 196 (119) 103 (26)

Net (loss/income) $ (55) $ 64 $ (119) $ (19) $ (36)

Year-OverMar-07(unaudited)

Year Change

Year-Over-Year

Change

FSLIC Resolution Fund 

Change

Deposit Insurance Fund

Mar-07

DIF Coverage Ratio

(Interest Revenue/Operating Expenses)

2.11 2.15 2.56

2.78

2.39 2.21 2.24 2.42 2.36

0

1

2

3

4

5

Year-end 2001 2002 2003 2004 2005 2006 2007 2008 2009

Projected

The coverage ratio in 2008 and 

2009 is projected to decline due 

to a modest decrease in 

interest revenue and a nominal 

increase in operating expenses. 

The projected decline in interest 

revenue is attributable to lower 

Treasury market yields.
page 11

3/31/08 12/31/07 Change

Par Value $48,441 $47,562 $879

Amortized Cost $51,219 $50,469 $750

Market Value $54,491 $52,378 $2,113

Primary Reserve 1 $17,208 $14,317 $2,891

Primary Reserve Target Floor $15,000 $15,000 $0

Primary Reserve % of Total Portfolio 31.2% 26.9% 4.3%

Year-to-Date Total Return (Portfolio) 3.734% 8.629% not applicable

Year-to-Date Total Return (Benchmark) 2 4.455% 8.861% not applicable

Total Return Variance (in basis points) (72.1) (23.2) not applicable

Yield-to-Maturity 3 4.45% 4.72% (0.27%)

Weighted Average Maturity (in years) 3.84 4.06 (0.22)

Effective Duration (in years) 4 

 Total Portfolio 3.04 3.19 (0.15)

 Available-for-Sale Securities 1.44 1.29 0.15

 Held-to-Maturity Securities 3.96 3.94 0.02

3/31/08 12/31/07 Change

Book Value 6 $425 $393 ($32)

Yield-to-Maturity 2.47% 4.22% (1.75%)

Weighted Average Maturity (in days) 3 19 (16)

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% "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)

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.

U.S. Treasury Security Yield Curves

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

3

Month

6

Month

1 Year

2

Year

3

Year

4

Year

5

Year

7

Year

10

Year

03/31/08 Conventional 12/31/07 Conventional 03/31/08 TIPS 12/31/07 TIPS

Conventional

12/31/07

3/31/08

TIPS

12/3107

3/31/08
page 12

Maintain a $150 million target floor overnight investment balance.

Strategically invest all available funds in excess of the target overnight investment balance, which may include purchasing

conventional Treasury securities within the zero- to six-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 eight years, subject to the following limitations:

All newly purchased Treasury securities shall be designated available-for-sale (AFS).

Newly purchased AFS conventional Treasury securities should have maturities of six years or less.

Increase the portfolio's primary reserve balance, with a goal of reaching a $15 billion target floor balance

over the near term.

No specified portfolio primary reserve target floor balance.

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 .

Approved Investment Strategy

Current Strategy as of 1st Quarter 2008

Strategy Changes for 2nd Quarter 2008

Current Strategy as of 1st Quarter 2008

DEPOSIT INSURANCE FUND

Strategy Changes for 2nd Quarter 2008

NATIONAL LIQUIDATION FUND
page 13

1) Budgets for investment projects are approved on a multi-year basis; the "Year-to-Date Budget" amount reflects the 2008 

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 $171,272 $163,358 95% ($7,914)

Outside Services - Personnel 42,528 32,309 76% (10,219)

Travel 13,942 13,639 98% (303)

Buildings 13,698 13,577 99% (121)

Equipment 10,986 7,605 69% (3,381)

Outside Services - Other 3,431 2,623 76% (808)

Other Expenses 2,482 2,007 81% (475)

Total Ongoing Operations $258,339 $235,118 91% ($23,221)

Receivership Funding

Salaries & Compensation $854 $208 24% ($646)

Outside Services - Personnel 15,336 6,278 41% (9,058)

Travel 1,407 382 27% (1,025)

Buildings 575 724 126% 149

Equipment 56 24 43% (32)

Outside Services - Other 136 393 289% 257

Other Expenses 380 1,417 373% 1,037

Total Receivership Funding $18,744 $9,426 50% ($9,318)

Total Corporate Operating Budget $277,083 $244,544 88% ($32,539)

Investment Budget 1 $6,214 $5,212 84% ($1,002)

Grand Total $283,297 $249,756 88% ($33,541)

(Dollars in Thousands)

Executive Summary of 2008 Budget and Expenditures

by Major Expense Category

Through March 31, 2008
page 14

1) Executive Support includes the Offices of Diversity and Economic Opportunity, Public Affairs, Ombudsman, Legislative 

Affairs, Enterprise Risk Management, and International Affairs.

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

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

3) Budgets for investment projects are approved on a multi-year basis; the "Year-to-Date Budget" amount reflects the 2008 

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 $102,861 $96,743 94% ($6,118)

 Information Technology 50,364 41,580 83% (8,784)

 Administration 39,336 34,530 88% (4,806)

 Resolutions & Receiverships 24,463 18,933 77% (5,530)

 Legal 23,879 18,572 78% (5,307)

 Insurance & Research 9,030 7,740 86% (1,290)

 Finance 7,593 7,124 94% (469)

 Inspector General 6,599 5,624 85% (975)

 Corporate University 7,519 8,230 109% 711

 Executive Support 1 4,198 4,182 100% (16)

 Executive Offices 2 1,241 1,247 100% 6

 Government Litigation 0 39 N/A 39

 Total, Corporate Operating Budget $277,083 $244,544 88% ($32,539)

 Investment Budget 3

 Information Technology $6,073 $5,102 84% ($971)

 Resolutions & Receiverships 0 67 N/A 67

 Insurance & Research 141 43 30% (98)

 Total, Investment Budget 3 $6,214 $5,212 84% ($1,002)

 Combined Division/Office Budgets

 Supervision & Consumer Protection $102,861 $96,743 94% ($6,118)

 Information Technology 56,437 46,682 83% (9,755)

 Administration 39,336 34,530 88% (4,806)

 Resolutions & Receiverships 24,463 19,000 78% (5,463)

 Legal 23,879 18,572 78% (5,307)

 Insurance & Research 9,171 7,783 85% (1,388)

 Finance 7,593 7,124 94% (469)

 Inspector General 6,599 5,624 85% (975)

 Corporate University 7,519 8,230 109% 711

 Executive Support 1 4,198 4,182 100% (16)

 Executive Offices 2 1,241 1,247 100% 6

 Government Litigation 0 39 N/A 39

 Grand Total $283,297 $249,756 88% ($33,541)

Executive Summary of 2008 Budget and Expenditures

by Budget Component and Division/Office

Through March 31, 2008

(Dollars in Thousands)